DEVELOPMENT OF SMALL AND MEDIUM ENTERPRISES IN LAO PEOPLE’S DEMOCRATIC REPUBLIC: OPPORTUNITIES AND CHALLENGES

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MINISTRY OF EDUCATION AND TRAINING
FOREIGN TRADE UNIVERSITY
MASTER THESIS
DEVELOPMENT OF SMALL AND MEDIUM ENTERPRISES
IN LAO PEOPLE’S DEMOCRATIC REPUBLIC:
OPPORTUNITIES AND CHALLENGES
Specialization: International Economics
PHONETHIP SENGVILAY
Hanoi - 2020

MINISTRY OF EDUCATION AND TRAINING
FOREIGN TRADE UNIVERSITY
MASTER THESIS
DEVELOPMENT OF SMALL AND MEDIUM ENTERPRISES
IN LAO PEOPLE’S DEMOCRATIC REPUBLIC:
OPPORTUNITIES AND CHALLENGES
Specialization: International Economics
Code: 1806022067
Full name: Phonethip Sengvilay
Supervisor: Dr. Nguyen Binh Duong
Hanoi - 2020

i
STATEMENT OF ORIGINAL AUTHORSHIP
I hereby declare that this master thesis is my own scientific research which is
made under the guidance of my supervisor, Dr. Nguyen Binh Duong. The contents
and results of this research are completely honest. The information, data and
documents which are collected from various sources for analysis and evaluation
have been fully cited in the main content and in the references list of this master
thesis as well.
The Author
Phonethip Sengvilay

ii
ACKNOWLEDGEMENT
First and foremost, I would like to express my deepest appreciation to both
Laos and Vietnam government to give me a scholarship of study in Hanoi capital,
Vietnam country. I also would like to thank to my proposal supervisor, Dr. Nguyen
Binh Duong. Without her insightful advice and her devotion of time, I would not
have successfully completed this study. She is very nice and a great scholarly
mentor to me. Beside that, I also would like to thank to Foreign Trade University
for giving me the opportunity to study as a graduate student and obtaining my
master’s degree. I would like to extend my thanks to all people who helped me to
collect data, because without them, I would not have been able to complete my
research. I am truly grateful for your time, insights, thoughtfulness, and openness.
Finally, I would like to thank my family for their support, understanding, and
encouragement. Their overwhelming love and constant support have been the
driving force in the completion of my master’s degree.

iii
CONTENTS
STATEMENT OF ORIGINAL AUTHORSHIP ................................................... i
ACKNOWLEDGEMENT.......................................................................................ii
CONTENTS.............................................................................................................iii
LIST OF FIGURES ................................................................................................. v
LIST OF TABLES .................................................................................................. vi
ABRREVIATIONS ...............................................................................................viii
SUMMARY OF THESIS RESEARCH RESULTS............................................. ix
ABSTRACT .............................................................................................................. x
CHAPTER 1. INTRODUCTION ........................................................................... 1
1.1 Background .......................................................................................................... 1
1.2 Aim of objectives of the research......................................................................... 5
1.3 Literature review .................................................................................................. 5
1.4 Research question................................................................................................11
1.5 Research Methodology........................................................................................12
1.6 The structure of the thesis ...................................................................................12
1.7 Limitations and difficulties in implementing the research..................................12
CHAPTER 2. SITUATION OF SMALL AND MEDIUM ENTERPRISES IN
LAO PDR................................................................................................................ 14
2.1 Definition of small and medium enterprises .......................................................14
2.1.1 Definition of European Commission (EC) ................................................. 15
2.1.2 Definition of World Bank (WB)................................................................. 16
2.1.3 Definition of China ..................................................................................... 17
2.1.4 Definition of Vietnam................................................................................. 19
2.1.5 Definition of Lao PDR................................................................................ 20
2.2 Small and Medium Enterprises in Lao PDR.......................................................21
CHAPTER 3: OPPORTUNITIES AND CHALLENGES ON DEVELOPMENT
OF SMALL AND MEDIUM ENTERPRISES IN LAO PDR............................ 48

iv
3.1 Development of Small and Medium Enterprises under Socialist Market
Development in the Lao PDR ...................................................................................48
3.1.1 The perspectives and policies on SME development in Lao PDR ............. 48
3.1.2 Development of Small and Medium Enterprise in Regional and International
Integration in Lao PDR........................................................................................ 52
3.1.3 Strategy for Small and Medium Enterprise Development in the Lao PDR
under the Context of Regional and International Economic Integration............. 58
3.2 Opportunities and challenges of development of Small and Medium Enterprises
under a Socialist-oriented market economy in the Lao PDR....................................60
3.2.1 Opportunities on Development of Small and Medium Enterprises............ 60
3.2.2 Challenges on Development of Small and Medium Enterprises................ 61
CHAPTER 4. Policies of regional countries and recommendation for Lao PDR . 67
4.1. Policies of regional countries.............................................................................67
4.1.1 Government policy of promotion of SMEs in China.................................. 67
4.1.2 Government policy of promotion of SMEs in Thailand............................. 70
4.1.3 Government policy of promotion of SMEs in Vietnam ............................. 75
4.2 Recommendations for Lao PDR .........................................................................78
CONCLUSION....................................................................................................... 85
REFERENCES....................................................................................................... 86

v
LIST OF FIGURES
Figure 1.1: A RB Approach to Strategy Analysis: A Practical framework.................... 6
Figure 1.2: Business growth model framework....................................................................... 11
Figure 2.1: Share of Employment by Enterprises, 2013 ...................................................... 24
Figure 2.2: Access to Finance of Enterprises, 2013............................................................... 46
Figure 2.3: Source of Borrowing.................................................................................................... 47
Figure 3.1: The competitiveness of the Lao PDR in 5 smallest value ranking.......... 63

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LIST OF TABLES
Table 1.1: Economic Performance of Lao PDR in 1990-2017 ............................................ 3
Table 2.1: Definition of Small and Medium Enterprises with European Union
standard...................................................................................................................................................... 15
Table 2.2: Definition of Small and Medium Enterprises by World Bank standards 16
Table 3.1: Definition of Small and Medium Enterprises in China.................................. 18
Table 2.4: Definition of SMEs in Vietnam................................................................................ 20
Table 2.5: Definition of Small and Medium Enterprises in Lao PDR........................... 21
Table 2.6: Sizes of Enterprises by the Number of Employees, 2013............................. 22
Table 2.7: Distribution of Enterprises in Domestic and Foreign Markets, 2013 (%)
........................................................................................................................................................................23
Table 2.8: Location of Enterprises by Region and Province.............................................. 25
Table 2.9: Location of Enterprises by Area Types................................................................. 26
Table 2.10: Share of Enterprises by Economic Activities................................................... 27
Table 2.11: Ownership and Legal Status of Enterprises (%)............................................. 29
Table 2.12: Establishment Types of Enterprises (%)............................................................ 30
Table 2.13: Nationality of Owners ................................................................................................ 30
Table 2.14: Ethnic Group of Owners............................................................................................ 31
Table 2.15: Age of Owners............................................................................................................... 32
Table 2.16: Gender of Owners ........................................................................................................ 33
Table 2.17: Education of Owners................................................................................................... 34
Table 2.18: Opening of accounts in foreign countries.......................................................... 35
Table 2.19: Type of Accounts Opened in Foreign Countries............................................ 35
Table 2.20: Accounting Practices (%) ......................................................................................... 36
Table 2.21: Business Registration License ................................................................................ 37
Table 2.22: Total Registered Capital............................................................................................ 38
Table 2.23: Fixed Costs of Capital Stocks................................................................................. 39

vii
Table 2.24: Variable Costs ........................................................................................ 40
Table 2.25: Adding Fixed Costs in Total Costs ........................................................ 41
Table 2.26: Type of Business Registration and Tax Certificate ............................... 42
Table 2.27: Anticipation of Business Trends ............................................................ 42
Table 2.28: Computer Use to Run Businesses .......................................................... 43
Table 2.29: Number of Computer used in Enterprises.............................................. 44
Table 2.30: Enterprises with Internet ........................................................................ 45
Table 2.31: Enterprises with Internet Accesss .......................................................... 45
Table 3.1: Development Directions and Strategic Development Plans of the Lao PDR
under Regional and International Integration Framework ........................................ 59
(2016-2020) ............................................................................................................... 59
Table 3.2: The competitiveness ranking of Lao PDR and ASEAN countries .......... 61
Table 3.3: Issues affecting the competitiveness of the Lao PDR ............................. 62
Table 3.4: Comparison of Competitiveness Index between Lao PDR and ASEAN (10
smallest value ranking) ............................................................................................. 62

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ABRREVIATIONS
Abbreviations Full name
ADB Asian Development Bank
AEC ASEAN Economic Community
ASEAN Association of Southeast Asian Nation
BoL Bank of Lao PDR
CA Core Competency
DOSMEP Department of Small and Medium Enterprise Promotion
FDI Foreign Direct Investment
GDP Gross Domestic Product
GMS Greater Mekong Subregion
GTZ German Agency for Technical Cooperation
ICT Information and Communication Technology
IMF International Monetary Fund
Lao PDR The Lao People’s Democratic Republic
LAK Lao Kip
LNCCI Lao Nation Chamber of Commerce and Industry
MIH Ministry of Industry and Handicraft
MNC Multinational Corporation
MoF Ministry of Finance
MOIC Ministry of Industry and Commerce
NERI National Economic Research Institute
OECD Organization for Economic Coperation and Development
PBC People’s Bank of China
SMEs Small and Medium Enterprises
SMEPDO SME Promotion and Development Office/MOIC
UNIDO United Nations Industrial Development Organization
WB World Bank
WTO World Trade Organization

ix
SUMMARY OF THESIS RESEARCH RESULTS
Thesis research with topic: “Development of Small and Medium Enterprises in
Lao People’s Democratic Republic: Opportunities and Challenges”. First of all, this
research are represented the overview of economics in Lao PDR, the definition of
SMEs in different countries in the world and explore how SMEs in Laos PDR
important to economics at present. In addition, thesis explain in details the situation
of SMEs in Lao PDR such as the quantity of size, criterion of enterprises scale and
other numerous datas in order to analyze, assessment on SMEs as well as the
economics growth on the important and the way in development of SMEs.
On the other hand, the author would bring opportunities and challenges for Lao
the way in development of SMEs. The last but not least, providing some experience
learn from China, Thailand and Vietnam country specialized in their policies on
supporting SMEs. It would be good suggested lessons for Lao PDR by learning from
neighboring country so author could be summarized and offered the best solution even
the policies to promote the development of small and medium enterprises in Lao PDR.

x
ABSTRACT
Recognizing the importance of small and medium-sized enterprises, most
countries has paid attention to the development of SMEs by enacting policies
specific policies, strategies and plans to support SMEs. So in many countries, SMEs
have a great role and importance. For example, SMEs account for 99.7%. of total
enterprises, 70.2% of total employees and 51.1% of total products in Japan. In
China SMEs account for 99% of total sales and 75% of the labor force
In the economy in Lao PDR now, small and medium-sized enterprises account
for over 90% of the total number of businesses across the country, which is
reflected in the one of the growth engines of the economy as well as a positive
contribution in ensuring social security.
To ensure the implementation of the Socio-Economic Development Strategy
as well as Industrialization and Modernization Strategy toward the year 2020,
especially to achieve the expected of growing economic and eradication of poverty,
the government of Lao PDR emphasis to development of Smes as well as driving
the economic growth.
Meanwhile, the Lao government has defined policies to support SMEs because
SMEs have an important role in enhancing economic development in Laos. In
summary of National Socio-Economic Development Plan accept the expansions of
SMEs that is crucial for reducing poverty and exiting status of undeveloped country.
Although, the development of SMEs contributes to create jobs, add value, improve
innovation and strengthen the ability of domestic entrepreneurs and economic
expansion, but Lao PDR still lack of treatment and information, difficulties related
to transformation of ideas into achievable project, fundamentals to support domestic
market in the country etc. In order to overcome these problems there is a need of
worldwide supportive policies to create positive enterprise climate which would
make possible the development of new businesses and those which are existing
businesses. In this respect, it is very important to analyze and see the other
countries’ experiences. Based on this aspect, this research will present a theoretical
aspect and practical experiences in the development of businesses in Lao PDR and
abroad.

xi
In a theoretical aspect, I am going to present the definitions and classification
of enterprises and also the role and the importance of businesses in the development
of economy by creating new jobs. The practical aspect will be presented by the
experiences of developed businesses in some places, also dynamic and development
of businesses in Lao PDR recently.
From this analysis, I will tell in detail problems and difficulties which
businesses face in Lao PDR during their development, possibilities to overcome
these difficulties and other challenges of creating conditions for consistent
economic development.
I hope this study will be a reference for the relevant sector, local authorities
and all reader which interesting in this field that becomes a lesson and know how to
implement the real sector and its local. I hope it will be served in the plan, program
and project development sector which lead participant of society operate the correct
plan, consistent guidelines and government policies. In the long term, it will be
supported to the government policy to develop the economic, stable, sustainable and
towards achieving the goal of exiting the status of LDC in 2020, stepped up the
medium income in 2030, and achieving Sustainable Development Goals (SDGs) at
the United Nations issued.
Overall, the study shows that despite limitations in development of enterprises. In
particular infrastructure, the economy, trade and service of local enterprises and local
produce also have limited, no resources enough to use to produce, lack of capital and
technology to produce goods. The quality of services of logistics system remains low.
Therefore, I chose the topic "Development of Small and Medium Enterprises
in Lao People's Democratic Republic: Opportunities and Challenges" as my
research topic.

1
CHAPTER 1. INTRODUCTION
1.1 Background
The Lao PDR is a land-locked and mountainous country. The country has a total
area of 236,800 square kilometres1 and borders with the Kingdom of Cambodia, the
People’s Republic of China, the Republic of the Union of Myanmar, the Kingdom of
Thailand and the Socialist Republic of Vietnam. Some 80 percent of the land area is
hilly or mountainous terrain (“midland” or “upland”), including areas that are remote
and difficult to access. Lowland areas account for only 20 percent of the land area, but
accommodate over half the country’s population (56 percent). Only one-quarter of the
country’s land area is considered cultivable. Administratively, the country is divided
into 17 provinces and Vientiane Capital, with 145 districts and 8,600 villages. In 2019,
the population of Laos is estimated at 7.17 million, which ranks 105th in the world.
Economic growth in Lao PDR is projected to rebound to 6.5 percent in 2019, up from
6.3 percent in 2018. This pick up is expected to be driven by growth of the construction
sector supported by investments in large infrastructure projects, and a resilient services
sector, led by wholesale and retail trade growth. The Government has remained
committed to fiscal consolidation to contain public debt in the medium term by
tightening public expenditure and improving revenue administration. The medium-term
outlook remains broadly favorable, but subject to downside risks from heightened
uncertainty in the global and domestic environments. Prolonged trade tensions among
major economies could dampen growth prospects in Lao PDR’s major trading partners,
and spillover to the domestic economy through lower trade and investment, and
reduced prices for key export commodities. Additionally, improving the business
environment and reversing the decline in the global ranking of the ease of doing
business, particularly for small and medium-sized enterprises, could also contribute to
greater macroeconomic stability, job creation and poverty reduction.
The introduction of the New Economic Mechanism (NEM) in 1986 generated
an initial step in moving the economy towards a more market-oriented economy.

2
Major reforms have been done by: removing price control, abandoning socialist
cooperative farming, unifying the exchange rate system, removing the government’s
monopoly on trade, reducing the number of SOEs, promoting private-firm
establishment, fiscal reform and banking and fianancial reform. The economic
reform in Lao PDR aim to provide better incentives for private sector, and as a
result, to increase the productivity of various industrial sectors, boost domestic
demand, increase exports and foreign direct investment (FDI), and infrastructures
and human resources. Such reforms successfully generated robust economic growth
for the past two decades.
As shown in table 1.1, Lao PDR is one of the fast growing economic in East
Asia and the Pacific. The growth rate of the Lao PDR economy, measured by the
annual growth of real GDP, recorded at 7.62% over the period 2011-2015, which
was almost twice higher than average growth rate of GDP (4.1%) for economies in
the region over the same period. Monetary supply and prices remained stable, while
the low international reserve and high fiscal deficit raised concern over economic
instability (World Bank, 2019, IMF, 2018). The inflation rate had an average rate at
a single digit and the exchange rate was less volatile. Rapid GDP growth and
relatively stable macroeconomic environments improved economic welfare of Lao
people. Real GDP per capital rose by 182% from US$613 in 1998 to US$1, 730 in
2017.
The high fiscal deficit raised the level of public debt from 59% of GDP (US$9
billion) in 2016 to about 60% in 2017 (World Bank, 2017c). 80% of the total public
debt was accounted for by external debts to finance the fiscal deficit. There are
three main channels of externals borrowing: multilateral borrowing, bilateral
borrowing and bond issuance. Among these things, bilateral borrowing made up of
the largest source of total external debt. Bilateral creditors, mainly China, Thailand
and Japan, accounted for 56% of the total external public debt. Multilateral
creditors, mainly the Asian Development Bank and the International Development
Association, accounted for 18% while bond issuance accounted for 15%.

3
Table 1.1: Economic Performance of Lao PDR in 1990-2017
Macroeconomic
2017 2016
2011- 2006- 2001- 1996-
1990-95
Indicator
15 10 05 00
Population growth
1.47 1.41 1.54 2.16 1.58 2.07 2.71
(%)
GDP growth (%) 6.89 7.02 7.62 7.98 6.24 6.17 6.28
GDP per capita
(constant 2000 1,730 1,643 1,452 841 371 302 243
US$)
GDP per capita
5.3 5.5 6.1 5.9 4.6 4.0 3.4
growth (%)
Broad money
12.9 10.9 23.9 38.3 20.2 66.0 30.9
growth (%)
Inflation of CPI (%) 0.8 1.5 3.8 5.0 10.3 57.0 15.3
Trade balance (% of
-4.8 -7.1 -1.0 -0.6 -10.4 -17.0 -13.0
GDP)
External debt stock
113.7 104.5 93.1 101.1 129.9 153.0 160.3
(% of GDP)
Budget deficit (% of
-4.8 -4.6 -3.4 -2.5 -4.1 -4.9 -8.0
GDP)
Exchange rate (kip
8,35 8,18 8,07 9,06 10,16 4,09 727.00
per US$)
Source: World Bank and Asian Development Bank According to the 2018 triennial
review by the Committee for Development Poicy, United Nations Economic and
Social Council, Lao PDR for first time passed two out of the three graduation
criteria for the least development countries (LDC), gross national income (GNI) per
capita and Human Assets Index (HAI). GNI per

4
capita rose from $1232 in 2015 to $1996 in 2018, which passed the graduation
threshold of $1230. The HAI increased from 60.8 in 2015 to 72.8 in 2018, which
exceeded the graduation threshold of 66. The largest improved element of HAI was
the adult literacy rate, followed by the gross secondary enrolment rario and the
under-five mortality rate. But the Economic Vulnerability Index (EVI), measuring
the country’s resilience to shocks and instability, is still to be under the criteria. EVI
improved from 36.2 in 2015 to 32.7 in 2018, which has not yet passed the
graduation thershold of 32.12. The key improved elements of EVI include the share
of agriculture in GDP, victims of natural disasters and export concentration. The
limited improved elements of EVI include agricultural instability and remoteness
while the lack of improved elements was export instability. Nonetheless, if Lao
PDR can sustains development gains and meets the criteria in 2021.
Lao PDR has focused its SME policy on improving the legal and regulatory
environment to support SME development. It has been developing targeted SME
policies since the early 2000s and benefits from a relatively good institutional
framework and a dedicated fund for SME development. It is increasingly interested
in policies to enhance SME productivity.
SMEs playing the main part of driving economic growth. At the present time,
SMEs in Laos contributed to 4% of GDP and 1 % of employment, so the private
producers and exporters play a very important role in the economic development of
Laos and will be the main sources of driving economic growth in the future as in the
other developing countries. Besides that, SMEs are the largest source of employment
and will be the appropriate instrument of poverty reduction in the near future.
SMEs in Laos were not good enough to compare with ASEAN nations because
the quality of running businesses was not clear to follow up law and term conditions to
build up strength. Furthermore, the main cause of weakness running a business is no
strategic plan due to limited access to the loan, lack of workers’ skills, low quality of
infrastructure. Weakness of SMEs can be seen in promoting entrepreneur to cooperate
with foreign investors in order to increase productivity, market assessment

5
as well as expanded markets capacity, using modern technologies, and accessibility
to market information, etc.
Therefore, it is necessary to know the role, growth direction and challenges of
smes for social economic development under the socialist market system of Lao
PDR. In addition, this study will explore the ways to development Smes, the recent
research, issues related to development Smes, and summarize policies for
development Smes in Laos from neighboring countries.
1.2 Aim of objectives of the research
The aims of research is providing general assessments of the development of
Smes for Laos PDR through analysis of conditions, definition of SMEs and criteria
for classifying small and medium enterprises, and emphasis on their situation and
importance in the economic development of a country and the creation of jobs for
employment.
It will also focusing on a more detailed analysis business development in Lao
PDR, identifying the problems that businesses face: challenges and opportunities
Beside that, this thesis also intends to bringing policies from some developed
countries, how those countries have been able to support and encourage the
development of small and medium enterprises and offering the most effective
solutions for promoting the development of Smes in Laos PDR.
1.3 Literature review
In the current situation, due to increased integration of production and
exchange goods in regional and international under the globalization and more
business competitiveness which leading the theory of development of Smes should
be adapt with the world change situation. There are several international theories
that explain the growth of SMEs as follows:
Resources-Based Theory of Competitive Advantage: The Resource-Based
Theory of Competitive Advantage: Implications for Strategy Formulation – Robert
Grant (CMR 1991). The strategic development process starts by looking at the

6
relative position of a firm in a specific industry. This start by considering the firm’s
environment and then try to assess what strategy is the one that may maximize the
firm’s performance. The Resource-Based (RB) Theory, by contrast, can be seen as
an “inside-out” process of strategy formulation. Starting by looking at what
resources the firm possesses. Next, assessing their potential for value generation and
end up by defining a strategy that will allow them to capture the maximum of value
in a sustainable way.
Figure 1.1: A RB Approach to Strategy Analysis: A Practical framework
Source: The RB Theory of Competitive Advantage: Implications for
strategy...Grant, Robert M.California Management Review
In summary, the resource-based theory stems from the principle that the
strength of firm’s competitive advantage in their internal resources, as opposed to
their positioning in the external environment. This theory as a basis that resources,
capabilities and core competencies are essential for a firm’s competitive advantage.
Therefore, adequate resource support and policies to create capability are critical for
SMEs’ growth as they are small in size and need assistance. Resource based theory

7
provides a framework to explain how business can identify suitable measures to
overcome growth obstacles, have better access to technology resources, manpower
resources, financial resources, natural, and infrastructure, and access to the market
(Robert Grant, 1991).
Survival based theory: This theory was also introduced in the field of
economics. Researchers such as Schumpeter (1934), Alchian (1950), Harrod (1939)
and Marshall (1949) were among the first who introduced the idea of evolutionary
thinking and natural selection into the concept of economics. Hence it is being used to
analyzed how firms thrive and compete in industries, and also to explain changes in
economy (Nelson & Winter, 1982). The concept of survival-based theory or some
might call it as “survival of the fittest’ theory was originally developed by Herbert
Spencer (Miesing & Preble, 1985). It was him who synthesized Darwin’s theory of
evolution and natural selection with Adam Smith’s invisible hands to come up with
the idea of Social Darwinism. This theory emphasized on the notion that by
following the principle of nature, only the best and the fittest of competitors will
win, which in the end would lead to the improvement of the social community as a
whole. Social Darwinism assumed it is normal for the competition to behave in
hedonistic ways to produce the fittest business, who survived and prospered by
successfully adapting to its environment or become the most efficient and economic
producer of all. The survival-based view in strategic management emphasized on
the assumptions that in order to survive, organizations has to deploy strategies that
should be focused on running very efficient operations and can respond rapidly to
the changing of competitive environment (Khairuddin, 2005), since the one that
survive is the one that is the fittest and most able to adapt to the environment.
However, the primary objective of run a company to make the organization run
efficiently in order to better adapt to the environment, improving its profitability
and to achieve the ultimate goal of surviving the competitive market in which it
operates. In brief, the survival-base theory is the strategy that firm uses to avoid
being exterminated by competitors. One process- sensing, intuition, feeling,
thinking- must be developed by a business manager in order to succeed in

8
innovativeness and high intellectual and practical capacity to run his company with
bold jump and should be ready to accept the uncertainty (Gibcus, 2003). Basically,
the underpinning of survival strategy is that organization needs to continuously
adapt to its competitive environment in order to survive.
The Small is Beautiful theory: The Small is Beautiful theory is a classic
theory advances the promotion of small-scale economic markets and systems, co-
operatives and greater decentralization (Schumacher, 1973). Schumacher argues that
the modern economy is unsustainable. Natural resources (like fossil fuels), are treated
as expendable income, when in fact they should be treated as capital, since they are not
renewable, and thus subject to eventual depletion. He further argues that nature's
resistance to pollution is limited as well. He concludes that government effort must be
concentrated on sustainable development, because relatively minor improvements, for
example, technology transfer to Third World countries, will not solve the underlying
problem of an unsustainable economy. Schumacher's philosophy is one of
"enoughness", appreciating both human needs and limitations, and appropriate use of
technology. It grew out of his study of village-based economics and education as the
greatest resource, and discusses Land, Industry, Nuclear Energy and the human impact
of Technology. In a similar vein, Paulson (1980) found that the relative size of the
small retail firm is associated with horizontal differentiation and levels of complexity.
Also, Fullerton (2008) appreciated the observation of Schumacher‟s lead
in his best-selling book, Small is Beautiful-Economic as if People Mattered, with the
opinion that the global system is broken not because of the credit crisis; it is broken
because it is predicated on perpetual, resources driven with no recognition of scale
limitation. It points out very skilfully what is exactly wrong with the modern industrial
society, and offers an alternative; appropriate technology, respect for human values,
and especially bringing things back to the small scale. The theory of economic
development–place of small business argues that government has begun to initiate new
policies and supports for SMEs growth and development that later turn them into large
enterprises following the agitation and needs for SMEs involvement in an economy.
The alternative theoretical perspective of Arrow (1962) contends that

9
smaller businesses are more productive. The author argued that in the presence of
competition (such as when a number of smaller firms are competing with each
other), the monopolist tends to lose out in innovating, since the rents extracted by
maintaining the monopoly power exceeds the benefits of the lower prices brought
about by innovation. However, smaller firms will be able to benefit by innovating
under these conditions, because the lower prices and costs resulting from innovation
leads to competitive advantages in the marketplace. To sum up, the Small Business
Beautiful theory describes the resilience of small businesses, especially the
restructuring of production to the current changing world economy; In addition,
small businesses contribute to the price diversification and quality of their products
to society.
The Ownership Theory: The ownership theory explains that the ownership
structure whether concentrated or diffused ought to be influenced by the profit-
maximizing interests. At the level of small and medium scale enterprises, the skills
of the owner manager are critical to the long-term success and survival of the firm
while the role of the capitalist is usually diffused at the corporate level for large
companies. Owner’s manager is the enterprise main strategist and decision maker,
developing the vision, mission and strategies, and also implementing them. However,
the role of the owner-manager and his attitude towards strategic issues are therefore
often critical for implementation of strategy. Likewise, the personal goals, traits and
strategic orientation will have significant impact on enterprise strategy.
Smes Business Growth Model: This theory made by Li JK, H-H. and Tan, K.H
(2004), they described medium-sized manufacturing firms (SMEs) in transforming
themselves into large firms (MNCs) both regionally and globally. Given the relative
rarity of the typical small business making substantial growth, academics, management
experts and governments in many countries have been keen to discover ways in which
small business growth can be encouraged and seeking for strategies to make
successfully SMEs growth. Basically, these business models could be summarised into
a framework, consisting of following three approaches:

10
1) Breadth-on-Top-of-Depth
In the BTD strategy, firms seek to place their developing expertise in a broad
context. One way to look at the concept is to imagine a capital ‘T’. Here, depth is
represented by the stem of the ‘T’, and breadth by the horizontal arrows. BTD
means breadth in addition to depth. Developing depth, be it in a technical/research
area, is essential to business success. The last thing that SMEs want is to be ‘a mile
wide and an inch depth’!
2) Transformation
In transformation strategy, firms think ahead, and to some degree act ahead of
the stage they are currently occupying. They not only demonstrate their willingness
to assume the size/market they are seeking, but also their readiness to do so. Just as
other SMEs began thinking about expansion, they need to begin doing some of the
things MNCs do while they are still a SME firm
3) Diversify
In the diversify strategy, firms expand their product range and production
capabilities based on their core competence.

11
Breadth-on-Top-of-Depth Transformation Diversify
 Identify core competence

 Identify product platform

 Choose a market

 Establish brand name

 Identify potential
expansion

 Acquire needed
technology/ skill


 Managing performance
 Carrying out market
research

 Identify niche


 Increasing production
capability

 Conduct R & D on the
chosen path


 Shift in customer base
 Build on core
technology/competence
 Increasing product
 Expand market and
customer base
Figure 1.2: Business growth model framework
Source: Li JK, H-H. and Tan, K.H. (2004) ‘SMEs business growth model: a medium
to big effort’, Int. J.Management and Enterprise Development
1.4 Research question
This research is trying to finding the way to development Smes in Laos as
well as development economic. This is also some main questions to find out the
information.
What are the definitions and the important of SMEs for Lao PDR?

What are the challenges faced by Small and Medium Enterprises?

How do Smes contribute to national and economic development?

12
What are the supportive Lao’s SMEs policies learned from developed
countries and some counties in region?
1.5 Research Methodology
This section sets out the qualitative methodology that was used to achieve the
objective of the study. This thesis research uses methods of analysis, synthesis and
comparison the statistical data collected from secondary sources including
published and unpublished data collected from different organizations, institutes,
agencies and government offices such as: Ministry of Industry and Commerce in
Lao, Department of Small and Medium Enterprises Promotion, Lao Nation
Chamber of Commerce and Industry and a number of other sources mentioned in
the content of the article. Furthermore, common sources of secondary data for social
science include the censuses, organizational report. Especially, the data have been
collected from economic survey 2013, Enterprise survey by the Lao Statistics
Bureau, and SMEs surveyed by GIZ, 2013.
1.6 The structure of the thesis
This thesis consist of four chapters as follow:
Chapter 1 Introduction
Chapter 2 Situation of Small and Medium Enterprise in Lao PDR
Chapter 3 Opportunities and challenges on development Small and Medium
Enterprise in Lao PDR
Chapter 4 Policies of regional countries and recommendation for Lao PDR
1.7 Limitations and difficulties in implementing the research
The limitations and difficulties in the research.
1). Restrictions on use the methodology cause of limited ability to conduct a
thorough analysis of the results such as: econometric model, interview or
questionaire...

13
2). Restrictions on access to information required: contact coordinate
secondary data, especially the balance sheet and report the results as expenses in the
foreign companies from both the government and the foreign companies. It is very
difficult and can not cover all.
3). Restrictions on time constraint: it is a limited time to finding more
statistical data or more information to demonstrate issue clearly.

14
CHAPTER 2. SITUATION OF SMALL AND MEDIUM ENTERPRISES
IN LAO PDR
2.1. Definition of small and medium enterprises
Small and medium-sized enterprises (SMEs) has an important part of the
economy and the small-scale enterprises. SMEs are very flexible, dynamic, more
development advantages but sometime they are vulnerable. Therefore, almost
countries should have policies, regulations and measurements that could be support
this type of business development. It is important to identify definition of SMEs
logically because this will determine the scope of management, the operating with
the environment and the support from the government.
Up to present, there are two common Smes groups of criteria have been
established, they are qualitative and quantitative criteria. The most common criterion to
distinguish between large and small businesses is the number of employees. The
qualitative criteria group is based on the basic characteristics of the enterprise such as
the level of specialization, the number of management clues, the level of complexity in
the organization and management work. This group of criteria has the advantage of
reflecting the true nature of SMEs, but it is difficult to determine. The group of
quantitative criteria is based on the actual regular labor size and the total investment
capital which represents the total value of assets or turnover in a year. Countries around
the world rely on these two quantitative criteria to determine the size of the SME
sector, but in each country has a different level of quantification. The determination of
the size of SMEs influenced by factors such as the level of development of the
economy or classification purposes in certain periods.
Currently, there is no unified definition of SMEs in the world. Despite the lack of
universality of the definition and the lack of alignment in the criteria, the importance of
SMEs definition is inalienable. The definition of small and medium enterprises is
important and useful: in the preparation of statistics or in benchmarking against other
economies and between regions within an economy. These are some definitions of
SMEs from organizations, countries and regions in the world.

15
2.1.1 Definition of European Commission (EC)
European Commission promotes “the criterion of the number of staff as the
main criterion, however, introducing a financial criterion is nonetheless a necessary
adjunct in order to grasp the real scale and performance of an enterprise and its
position compared to its competitors” (European Commission: 2003). European
Commission through a guide determines the criteria for defining enterprises:
number of employees, annual turnover and annual balance sheet (European
Commission: 2005). It is determined that meeting the criteria of the number of
employees is mandatory, while filling another from the two financial criteria is a
choice of the enterprise. The definition of SMEs that came into effect from 1
January 2005 is shown in the following table.
Table 2.1: Definition of Small and Medium Enterprises with European Union
standard
Enterprise
Headcount:
Annual balance
Annual Work Unit Annual turnover
category
(AWU)
sheet total
Medium sized < 250 ≤ €50 million ≤ €50 million
Small < 50 ≤ €10 million ≤ €10 million
Micro < 10 ≤ €2 million ≤ €2 million
Source: European Commission 2005
According to the European Commission (EC) report has effective on 1st
January, 2005 (2003/361 / EU), SMEs are independent enterprises with the number
of employees less than 250 peoples and annual turnover or total assets do not exceed
50 million dollar. Small business is an enterprise with the number of employees under
50 peoples with annual turnover does not exceed 10 million dollar. Micro enterprises
are enterprises with less than 10 peoples and annual turnover or total assets do not
exceed 2 million dollar.

16
This new definition replaces the old EC definition in 1996 and has the same
labor criteria with the old definition, but the criteria for annual turnover of assets are
lower. The increase in financial criteria could explained the economy growth
leading to the increasing in prices and labor productivity in the European Union
(EU) countries.
2.1.2 Definition of World Bank (WB)
The World Bank uses three quantitative criteria for defining SMEs: number of
employees, total assets in U.S. dollars and annual sales in U.S. dollars (IEG: 2008).
A business must meet the quantitative criteria of number of employees and at least
one financial criteria to be categorized as micro, small or medium business.
Table 2.2: Definition of Small and Medium Enterprises by World Bank
standards
Enterprise indicator
Number of
Total assets Total annual sales
employees
> 50; >$3.000.000; >$3.000.000;
Medium sized
≤ 300 ≤ $15.000.000 ≤ $15.000.000
Small
>10; >$100.000; >$100.000;
≤ 50 ≤ $3.000.000 ≤ $3.000.000
Micro < 10 ≤ $100.000 ≤ $100.000
Source: Independent Evaluation Group 2008 If we compare the two criteria,
“approximations” are observed in quantitative criteria of number of employees, with
the exception that the World Bank raises the upper threshold for medium-sized
businesses to 300 workers. Inconsistencies are most pronounced in financial
criteria. Besides differences in denomination (EUR/USD) which is
understandable, financial criteria used are quite different. While the EU uses the
criteria of annual turnover and balance sheet total, WB use the criteria of total assets
and total annual sales. Financial criteria of the two institutions have no

17
basis of comparability; moreover there are substantial differences in definition.
World Bank criteria seize more minimalist thresholds than the European Union.
While for the EU has a micro business has a turnover of up to two million Euros,
for WB it must not exceed annual sales of up to one hundred thousand dollars. EU
sets maximum threshold of fifty million Euros to distinguish medium businesses
from large ones, while WB sets it to only fifteen million dollars for the two
financial criteria.
Although being the most common criterion in the definition, the number of
employees has many variances indifferent sources of SMEs statisticalreporting. The
largest number of sources defines SMEs to have a cut-off range of 0-250 employees
(Ayyagari et al.: 2003). Among all SMEs definitions, the one most implemented in
SME studies is that of the European Union. However, it remains far from being
appropriated by the state governments and policymakers. Although recommended
by the EU, that definition is only mandatory for institutions and businesses seeking
funding from it (Carter and Jones-Evans: 2006).
2.1.3 Definition SMEs in China
The Interim Categorizing Criteria on Small and Medium-sized Enterprises
(SMEs), published in 2003 and based on the SME Promotion Law of China, sets the
guidelines for classifying SMEs. It replaced the old guidelines that came into effect
in 1988, and the supplementary criteria of 1992.

18
Table 3.1: Definition of Small and Medium Enterprises in China
Size
Industries
Employmen
Total assets Business revenue
Category t based
Small Industry < 300 <¥ 40 million <¥ 30 million
Constructive < 600 <¥ 40 million <¥ 30 million
Wholesale < 100 <¥ 30 million
Retail < 100 <¥ 10 million
Transport < 500 <¥ 30 million
Post < 400 <¥ 30 million
Hotel & < 400 <¥ 30 million
restaurant
Medium Industry 300-2000 ¥ 40 million – ¥ 30 million – 300 million
400 million
Construction 600-3000 ¥ 40 million – ¥ 30 million – 300 million
400 million
Wholesale 100-200 ¥ 30 million – 300 million
Retail 100-500 ¥ 10 million – 150 million
Transport 500-3000 ¥ 30 million – 300 million
Post 400-1000 ¥ 30 million – 300 million
Hotel & 400-800 ¥ 30 million – 150 million
restaurant
Source: SME promotion law of China, 2003.
The study mainly cover the payrolls, revenue and total assets of enterprises.
Specific criteria apply to the industrial sector, construction, transportation,
wholesale and retail business, and hotels and restaurants. For industrial sector
requires SMEs to employ a maximum 2,000 people, and to have an annual revenue
not exceeding RMB300 million. Their total assets should not exceed RMB 400
million. Medium-sized enterprises should employ a minimum of 300 people. Their
annual revenue and total assets should not exceeding RMB30 million and 40 million
respectively. The rest are classified as small enterprises.

19
The definition of an SME in China is quite complex and can include relatively
large firms. In APEC (Asia-Pacific Economic Cooperation) economies, the
definition of an SME also varies, but is generally most commonly is based on the
number of employees. SMEs commonly employ 100 to 500 people. But the vast
bulk of SMEs, comprising around 70 percent, employ five people or less or are run
by self-employed individuals. SME definition in China depends on the industry
category and is defined based on the number of employees, annual revenue, and
total assets comprising a company.
An industrial SME is defined as having up has up to 2,000 employees; while a
medium-sized business has between 301 and 2,000 employees; and a small business
has less than 300. Consequently, what is regarded as an SME in China may be quite
large relative to an SME in other countries.
2.1.4 Definition of Vietnam
From 2001 to 2009, the definition of SME is said in Decree 90/2001 ND-CP
as follow: SME is an independent business establishment with registered capital not
exceeding 10 billion VND (about US $600,000) or annual average number of
permanent workers not exceeding 300.
In 2009, the definition of SME is said in Decree 56/2009/ND-CP as follow: Small
and medium-sized enterprises are business establishments that have registered their
business according to law and are divided into three levels: very small, small and
medium according to the sizes of their total capital (equivalent to the total assets
identified in an enterprise’s accounting balance sheet) or the average annual number of
laborers (total capital is the priority criterion), concretely Micro enterprises has the
number of employees of 10 or fewer. Small enterprises are enterprises with total capital
less than 20 billion VND and number of employees from 10 to 200 people (for
commercial and service sector, the total capital is determined less than 10 billion VND
and the number of employees is from 10 to 50 people); Medium enterprises are
enterprises with total capital from over 20 billion VND to 100 billion VND and
employees from over 20 to 300 people (for enterprises operating in trade and services,

20
the criteria for total capital are determined from over 10 billion to 50 billion VND
and the number of employees from 50 to 100 people).
Table 2.4: Definition of SMEs in Vietnam
MICRO-
SMALL-ENTERPRISE MEDIUM-ENTERPRISE
ENTERPRISE
Number of Total capital Number of
Total capital
Number of
employees (VND employees employees
(VND billion)
(Person) billion) (Person) (Person)
AGRICULTURE,
No more than No more than
From more
From more
From more
FORESTRY AND than 10 to
10 20 than 20 to 100
than 200 to
FISHERIES 200 300
INDUSTRY AND No more than No more than
From more
From more
From more
than 10 to than 200 to
CONSTRUCTION 10 20 than 20 to 100
200 300
TRADE AND No more than No more than
From more
From more
From more
than 10 to
SERVICE 10 10 than 10 to 500
than 50 to
50 100
Source: Decree No. 56/2009/ND-CP
In the newly established Law on Facilitating SME sector (No. 04/2017/QH14),
which will be in force from January 1, 2018, an enterprise is considered as SME if it
meets either the following criteria: (i) total capital should not exceed VND 100
billion; or (ii) total turnover of the preceding year should not exceed VND 300 billion.
The criteria of micro-enterprises, small enterprises, and medium enterprises would be
identified differently in the fields of agriculture, construction, trade and services etc.
2.1.5 Definition of Lao PDR
The definition for SMEs in various countries are different. The criteria for
classifying enterprises into different categories are usually number of employees, value
of assets and sales. For Lao PDR, the Ministry of Industry and Handicraft (MIH)
together with GTZ have, for the survey in 1996, specified that enterprises with 1-9
employees are small, with 10-29 are medium, and with 30 or more are large.

21
However, in 2000 the National Statistical Center classified enterprises with 1 - 9
employees as small, 10-99 as medium, and 100 or more as large. Currently, the
definition used is in accordance with the Prime Minister Decree No. 42 officially
issued in 2004 based on the number of employees, the value of assets and the annual
average turnover. It states that: “Small and Medium-Sized Enterprises are
independent establishments which are legally registered and are running their
activities in accordance with the laws of Lao PDR.” The sizes are defined by the
following criteria:
1) Small enterprises – those with an annual average number of employees not
exceeding 19 persons or total assets not exceeding 250 million kip or an annual
turnover not exceeding 4 hundred million kip.
2) Medium-sized enterprises – those with an annual average number of
employees not exceeding 99 persons or total assets not exceeding 1.2 billion kip or
an annual turnover not exceeding 1 billion kip.
Table 2.5: Definition of Small and Medium Enterprises in Lao PDR
Category
Average annual Total asset Annual turnover
number of employee (Lao Kip) (Lao Kip)
Small ≤ 19 ≤ 250 million ≤ 400 million
Medium ≤ 99 ≤ 1.2 Billion ≤ 1 Billion
Source: Strategy for SMEs Development Utill 2010, MOIC Lao PDR
2.2 Small and Medium Enterprises in Lao PDR
Firstly, SMEs are the important productive units in Lao PDR economic. Lao
Statistics Bureau (2013) (2013 Economic Census of Lao PDR) reveals that there were
124,873 enterprises in Lao PDR, which were slightly smaller than those reported in
2006 (126,913 enterprises). Table 4-1 presents the unit and percentage of total across
sizes of enterprises based on the number of employees. That is the census includes
large (311, 0.25%), medium (373, 0.30%), small (10.829, 8.67%), and micro

22
(113.360, 90.78%) enterprises. Among other things, SMEs accounted for 99.75% of
total enterprises in the Lao PDR economy, which follows a similar pattern of
neighbouring countries: 99.80% in Cambodia; 99.40% in Myanmar; 98.00% in
Vietnam; 99.70% in Thailand; and Indonesia (OECD and ERIA, 2018).
Table 2.6: Sizes of Enterprises by the Number of Employees, 2013
Enterprise size Units Percent of total (%)
Micro Enterprise (1-5 staff) 113,360 90.78
Small Enterprise (6-50 staff) 10,829 8.67
Medium Enterprise (51-99 staff) 373 0.30
Large Enterprise (more than 99 staff) 311 0.25
Total 124,873 100
Source: Lao Statistics Bureau (2013)
Second, SMEs produce goods and services, accounting for 16% of GDP. The
contribution for SMEs to GDP was more than 50% in Indonesia, 30% in Malaysia,
64% in the Philippines, and 37% in Thailand (Iqbal and Rahman, 2015). Although
the contribution in Lao PDR is lower than that in other countries (World Bank,
2018b), further development and promotion of SMEs remain a key element of the
long- term national development strategy. SMEs create many jobs, leveraging an
opportunity to extract surplus labour from the agricultural sector. SMEs are also
expected to promote technology transfer and innovation in the long run.
Third, SMEs serve domestic markets and connect the country to international
markets. As shown in Table 4-2, 98,31% (113,360 units), 93.18% (10,091 units), and
77.48% (289 units) of micro, small and medium enterprises respectively serves
domestic markets. Less than 3% of micro and small enterprises and about 20% of
medium ones exported goods to foreign countries. While 59.49% of large enterprises
(185 units) served domestic markets, 22.83% (71 units) exported to foreign countries
and the other 17.68% (55 units) served both domestic and foreign markets.

23
Table 2.7: Distribution of Enterprises in Domestic and Foreign Markets, 2013
(%)
Micro Small Medium Large
Markets
Unit Share Unit Share Unit Share Unit Share
Domestic 111,442 98.31 10,091 93.18 289 77.48 185 59.49
Export 238 0.21 184 1.7 29 7.77 71 22.83
Domestic
and 1,680 1.48 554 5.12 55 14.75 55 17.68
export
Total 113,360 100 10,829 100 373 100 311 100
Source: Lao Statistics Bureau (2013).
Fourth, SMEs generate a greater number of jobs than large enterprises. They
absorbed 76% employees of all private sectors and 14% of the national workforce.
The share of employment in micro and small enterprises increased relative to other
size of enterprises for their past performance. In 2013, there were 536,087 enterprise-
based employees, 76% (408,645 persons) of which were employed by micro and
small enterprises. The number of employees in micro and small enterprises was
around three times higher than those in large enterprises; and fifteen times higher than
those in medium enterprises. Meanwhile, the share of employees in micro and small
enterprises rose from 8.5% of the total national workforce in 2006 to 14% in 2013
(Figure 2.1).

24
Large enterprises
19%
Medium
enterprises
5%
Micro enterprises
53%
Small enterprises
23%
Figure 2.1: Share of Employment by Enterprises, 2013
 Location
More SMEs are in the central region than in the northern and southern regions of
Lao PDR by administrative regions: 32.86% of micro enterprises are in the central
region of the country, 24.44% are in the north and only 15.78% are in the south. By
individual provinces, the largest share of micro enterprises is Vientiane Capital
(26.92%), followed by Savannakhet (11.17%) and Champasak (9.25%). The lowest
share of micro enterprises is in Phongsaly (1.29%) and Sekong (1.27%). Similarly,
27.14% of small enterprises are in the central region of the country, 20.01% are in the
north and only 12.94% are in the south. By individual provinces, the largest share of
small enterprises is Vientiane Capital (39.91), followed by Savannakhet (9.94%) and
Champasak (8.15%). The lowest share of small enterprises is in Sekong (0.90%) and
Phongsaly (0.88%). Moreover, 25.2% of medium enterprises are in the central region
of the country, 13.66% are in the north, and only 11.52% are in the south. By individual
provinces, the largest share of medium enterprises is in Vientiane Capital (49.60%),
followed by Champasak (6.97%), Vientiane province (6.43%), and Savannakhet
(5.63%). The lowest share of medium enterprises is in Oudumxay (1.07%), Sekong
(0.80%) and Huaphanh (0.54%). The same geographical distribution is the case with
large enterprises, 53.70% of which are in Vientiane Capital, 25.40% are in the central
region and 12.23% are in the south (Table 2.8).

25
Table 2.8: Location of Enterprises by Region and Province
Micro Small Medium Large
Region Province
Unit Share Unit Share Unit Share Unit share
Vientiane Capital 30,513 26.92 4,322 39.91 185 49.60 167 53.70
Phongsaly 1,466 1.29 95 0.88 4 1.07 0 0.00
Luangnumtha 2,061 1.82 168 1.55 8 2.14 1 0.32
Oudomxay 3,628 3.20 238 2.20 4 107 5 1.61
Bokeo 2,052 1.81 265 2.45 8 2.14 5 1.61
North
Luangprabang 8,526 7.52 678 6.26 15 4.02 7 2.25
Huaphanh 2,222 1.96 197 1.82 2 0.54 3 0.96
Xayabury 7,754 6.84 525 4.85 10 2.68 6 1.93
Total 27,709 24.44 2,166 20.01 51 13.66 27 8.68
Xiengkhuang 3,931 3.47 265 2.45 13 3.49 2 0.64
Vientiane 10,452 9.22 766 7.07 24 6.43 16 5.14
Bolikhamxay 4,645 4.10 367 3.39 19 5.09 11 3.54
Central
Khammuane 5,558 4.90 465 4.29 17 4.56 17 5.47
Savannakhet 12,659 11.17 1,076 9.94 21 5.63 33 10.61
Total 37,245 32.86 2,939 27.14 94 25.20 79 25.40
Saravane 3,068 2.71 177 1.63 5 1.34 4 1.29
Sekong 1,445 1.27 97 0.90 3 0.80 4 1.29
Champasak 10,487 9.25 883 8.15 26 6.97 30 9.65
South
Attapeu 2,893 2.55 245 2.26 9 2.41 0 0.00
Total 17,893 15.78 1,402 12.94 43 11.52 38 12.23
113,360 100 10,829 100 373 99.98 311 100.01

26
With respect to area types, majority of enterprises are in urban areas (65.9%)
which have good infrastructures and markets: Focusing on the size of SMEs, we
find that medium and large enterprises are in urban areas, which account for 79.09%
and 81.35% of total enterprises, respectively. While micro and small enterprises
tend to be close to their production sites in rural areas with roads, which account for
21.4% and 34.2% of total enterprises, respectively, due to high living cost and rental
fees in order to reduce production costs (Table 2.9).
Table 2.9: Location of Enterprises by Area Types
Location Micro Small Medium Large Total
of
Unit Share Unit Share Unit Share Unit share Unit share
Enterprises
Urban 73,260 64.63 8,480 78.31 295 79.09 253 81.35 82,288 65.9
Rural with
38,790 34.22 2,322 21.44 78 20.91 58 18.65 41,248 33.03
road
Rural
without 1,310 1.16 27 0.25 0 0 0 0 1,337 1.07
road
Total 113,360 100 10,826 100 373 100 311 100 124,87 100
 Position of in the private sector
By economic activities, small enterprises operate in the wholesale and retail
trade, repair of motor vehicles and motorcycles, while medium ones mostly operate
in the manufacturing sector: 30.57% of small enterprises operated in wholesale and
retail trade, repair of motor vehicles and motorcycles, while 25.29% of small
enterprises operated in the manufacturing sector. The share of small enterprises in
the manufacturing sector is lower than that of medium enterprises (33.51%) and
large enterprises (37.62%) (Table 2.10)

27
Table 2.10: Share of Enterprises by Economic Activities
Micro Small Medium Large Total
Location of Enterprises
A. Agriculture, forestry
1,766 1.56 375 3.46 23 6.17 26 8.36 2,190 1.75
and fishing
B. Mining and Quarrying 85 0.07 150 1.39 10 2.68 12 3.86 257 0.21
C. Manufacturing 12,592 11.11 2,739 25.29 125 33.51 117 37.62 15,573 12.47
D. Electricity, gas, steam
and air conditioner and 28 0.02 66 0.61 11 2.95 13 4.18 118 0.09
supply
E. Water supply;
sewerage, waste
94 0.08 66 0.61 5 1.34 6 1.93 171 0.14
management and
remediation activities
F. Construction 201 0.18 378 3.49 36 9.65 27 8.68 642 0.51
G. Wholesale and retail
trade; repair of motor 75,037 66.19 3,310 30.57 24 6.43 31 9.97 78,402 62.79
vehicles and motorcycles
H. Transportation and
3,212 2.83 276 2.55 10 2.68 13 4.18 3,511 2.81
storage
I. Accommodation and
12,631 11.14 1,868 17.25 36 9.65 13 4.18 14,548 11.65
food service activities
J. Information and
251 0.22 97 0.90 20 5.36 7 2.25 375 0.30
communication
K. Financial and
196 0.17 300 2.77 18 4.83 17 5.47 531 0.43
insurance activities
L. Real estate activities 634 056 72 0.66 4 1.07 2 0.64 712 0.57

28
Location of Enterprises
M. Professional, scientific
301 0.27 103 0.95 3 0.80 2 0.64 409 0.33
and technical activities
N. Administrative and
616 0.54 225 2.08 5 1.34 5 1.61 851 0.68
support
Service activities
O. Public administration
and defense; compulsory 2 0.00 5 0.05 1 0.27 7 2.25 15 0.01
social security
P. Education 81 0.07 302 2.79 27 7.24 6 1.93 416 0.33
Q. Human health and
359 0.32 61 0.56 1 0.27 0 0.00 421 0.34
social work activities
R. Arts, entertainment
670 0.59 179 1.65 13 3.49 3 0.96 865 0.69
and recreation
S. Other service activities 4,549 4.01 255 2.35 1 0.27 3 0.96 4,808 3.85
No response 55 0.05 2 0.02 0 0.00 1 0.32 58 0.05
Total 113,360 100 10,829 100 373 10 311 100 124,873 100
 Ownership of Enterprises
About 98% of SMEs are domestic single proprietorship: Of these, small
enterprises occupy the higher share than medium one. SMEs of foreign simple
proprietorship account for only 1.25% of all enterprise, state-owned SMEs account
for 0.24% and state and foreign partnership account only for 0.05%. In comparison,
the share of enterprises with domestic single proprietorship is the highest in micro
enterprises (98.59% of micro enterprises), followed by small enterprises (91.48% of

29
small enterprise) and medium enterprises (66.76% of medium enterprises). The
business ownership in the form of state-owned and private foreign partnership is
found in medium rather than small enterprises. They are 6.97% against 1.76% and
6.43% against 1.04% for their respective categories. (Table 2.11)
Table 2.11: Ownership and Legal Status of Enterprises (%)
Ownership and legal status Micro Small Medium Large
Domestic single proprietorship 98.59 91.48 66.76 53.05
Foreign single proprietorship 1.09 2.67 6.97 8.68
Private domestic partnership 0.07 1.17 3.75 3.54
Private foreign partnership 0.04 1.04 6.43 11.58
Private domestic and foreign
0.04 0.66 4.02 7.40
partnership
State-owned enterprises 0.07 1.76 6.97 9.00
State and domestic partnership 0.03 0.35 1.61 2.89
State and foreign partnership 0.02 0.27 2.41 2.25
Cooperative 0.04 0.59 1.07 1.61
No response 0.01 0.00 0.00 0.00
Total 100.00 100.00 100.00 100.00
Sources: Lao Statistics Bureau 2013
Single establishment is the most common form in SMEs: 99.06% of SMEs are
single establishment, the major of which are micro and small enterprises. Only 0.04%
of SMEs are auxiliary while 0.03% are representative offices (Table 2.12).

30
Table 2.12: Establishment Types of Enterprises (%)
Type of establishment Micro Small Medium Large
Single establishment 99.62 93.93 78.82 68.49
Headquarter 0.04 1.09 5.63 9.65
Branch of domestic enterprises 0.29 3.81 8.04 12.54
Branch of foreign enterprises 0.03 0.63 4.56 8.68
Representative office 0.01 0.26 1.07 0.32
Auxiliary 0.01 0.28 2.14 0.32
No response 0.00 0.00 0.00 0.00
Total 100.00 100.00 100.00 100.00
SMEs’s owners are largely dominated by Lao enterprises: More than 90% of total
enterprises are owned by Lao enterpreneurs, mainly in terms of micro and small
enterprises, which cover 94.78% and 98.90% of total enterprises, respectively. For the
medium and large enterprises, foreign owners have already penetrated in Lao PDR, as
foreign owners of large enterprises, namely Thai, Chinese and Vietnamese nationality
account for 9.97%, 9.32% and 4.82% respectvely (Table 2.13)
Table 2.13: Nationality of Owners
Nationality
Unit Share Unit Share Unit Share Unit Share Unit Share
Lao 107,448 94.78 9,735 89.90 286 76.68 194 62.38 117,663 94.23
Chinese 2,763 2.44 454 4.19 24 6.43 29 9.32 3,270 2.62
Vietnamese 2773 2.45 312 2.88 14 3.75 15 4.82 3114 2.49
Thai 28 0.02 111 1.03 18 4.83 31 9.97 188 0.15
Others 277 0.24 215 1.99 30 8.04 42 13.50 564 0.45
No response 71 0.06 2 0.02 1 0.27 0 00.00 74 0.06
Total 113,360 100 10,829 100 373 100 311 100 124,873 100

31
The Lao-Tai ethnic group is dominant in term of business ownership for all
sizes of enterprises: Regarding the owner of enterprises in term of ethnic groups, the
Lao-Tai ethnic group is dominant in ownership for all sizes of enterprises. Its
ownership of micro, small, medium and large enterprises account for 85.14%,
86.60%, 75.07% and 59.81% respectively. Since the Lao-Tai ethnic group shares a
large proportion of Lao populations, it has a good foundation for doing business
compared with other ethnic groups (Table 2.14)
Table 2.14: Ethnic Group of Owners
Ethnic Group
Lao-Tai 96,511 85.14 9,378 86.60 280 75.07 186 59.81 106,355 85.17
Mon-Khmer 6,474 5.71 163 1.51 3 0.80 41 1.29 6,644 5.32
China-Tibet 3124 2.76 131 1.21 1 0.27 1 0.32 3257 2.61
Hmong-Lu-
1204 1.06 53 0.49 2 0.54 0 0.32 1260 1.01
Mien
Others 29 0.03 4 0.04 0 0.00 0 0.00 33 0.03
No response 6,018 5.31 1,100 10.16 87 23.32 119 38.26 7,324 5.87
Total 113,360 100 10,829 100 373 100 311 100 124,873 100
The average age of nearly haft enterprises owners ranges 31-45 years old. The
age has a positive relation with the size of enterprises. That is, the higher
enterprise’s age, the larger enterprise’s size: The average age of enterprise owners
being 31-45 years old accounts for 46.13% of total enterprises. Moreover, the age
and size of enterprises have a positive relation. Micro and small enterprises, owner’s
age of which is 36-45 years old, account for 31.68% and 32.43% of micro and small
enterprises respectively. Medium and large enterprises, owner’s age of which is 46-
60 years old, account for 47.39% and 48.56% of medium and large enterprises

32
respectively. The higher enterprise’s age, the more experience in doing business and
more capital accumulation. As a consequence, they can expand to larger enterprises
(Table 2.15)
Table 2.15: Age of Owners
Age of owner
manager
<=25 8,861 7.82 256 2.36 4 1.07 1 0.32 9,122 7.31
26-30 14,824 13.08 796 7.35 10 2.68 10 3.22 15,640 12.52
31-35 16,676 14.71 1,300 12 23 6.17 19 6.11 18,018 14.43
36-40 20,420 18.01 1,752 16.18 30 8.04 34 10.93 22,236 17.81
41-45 15,501 13.67 1,760 16.25 53 14.21 32 10.29 17,346 13.89
46-50 12,400 10.94 1,517 14.01 59 15.82 43 13.83 14,019 11.23
51-55 8,689 7.66 1,165 10.76 66 17.69 52 16.72 9,972 7.99
56-60 6,264 5.53 839 7.75 52 13.94 56 18.01 7,211 5.77
61-65 2,923 2.58 373 3.44 22 5.9 27 8.68 3,345 2.68
66-70 1.161 1.02 144 1.33 2 3.22 5 1.61 1,322 1.06
No
5,641 4.98 927 8.56 42 11.26 32 10.29 6,642 5.32
response
Total 113,360 100 10,829 100 373 100 311 100 124,873 100
Female owners are dominant in micro enterprise, while male owners are in other
sizes of enterprises: The results of enterprise surveys shows that 63.27% of micro
enterprises are owned by female entrepreneurs. Meanwhile, small, medium and large
firms are owned by male entrepreneurs, the shares of which are 62.71%, 77.21% and
87.46% of total enterprises respectively. Since male owners tend to be better than

33
female owners in term of ability to burden risks and make managerial decision
under high-pressure situations (Table 2.16).
Table 2.16: Gender of Owners
Gender
Male 41,626 36.72 6,791 62.71 288 77.21 272 87.46 48,977 39.22
Female 71,718 63.27 4,036 37.27 85 22.79 39 12.54 75,878 60.76
No
16 0.01 2 0.02 0 0.00 0 0.00 18 0.01
response
Total 113,360 100 10,829 100 373 100 311 100 124,873 100
The majority of Lao enterprise owners complete general education (secondary
school), while those of large enterprises have better education comparing to those of
small enterprises: When we look at SMEs, 74.15% and 52.03% of micro and small
enterprises complete general education respectively. On the other hand, 28.95% and
28.62% of medium and large enterprises owners graduate obtaining the bachelor’s
degree and then 22.52% and 29.26% of total medium and large enterprise owners
graduate from master or higher education respectively (Table 2.17)

34
Table 2.17: Education of Owners
Owner’s education
Post-graduate 619 0.55 490 4.52 84 22.52 91 29.26 1,284 1.03
Bachelor 3,039 2.68 1,527 14.10 108 28.95 89 28.62 4,763 3.81
Diploma 3341 2.95 1101 10.17 62 16.62 46 14.79 4550 3.64
Technical 5353 4.72 871 8.04 23 6.17 11 3.54 6258 5.01
Vocation/elementary 2800 2.47 282 2.60 6 1.61 3 0.96 3091 2.48
vacation
Gender education 84,059 74.15 5,634 52.03 70 18.77 48 15.43 89,811 71.92
Other 10665 9.408 449 4.146 8 2.145 4 1.286 11126 8.91
No response 3484 3.073 475 4.386 12 3.217 19 6.109 3990 3.195
Total 113,360 100 10,829 100 373 100 311 100 124,873 100
 Financial Management
Micro and small enterprise do not open their accounts in foreign countries, which
may reflect their limited participation in international trade: Almost all Lao enterprises
do not open accounts in foreign countries, particularly for micro and small enterprises.
Some medium (13.49%) and large enterprises (19.61%) open accounts in foreign
countries to facilitate doing business with their foreign trade partner (Table 2.18)

35
Table 2.18: Opening of accounts in foreign countries
Opening an Micro Small Medium Large Total
account in
foreign
Open account 935 0.82 509 4.70 52 13.94 61 19.61 1,557 1.25
in foreign
Not open 112,278 99.05 10,308 95.19 319 85.52 246 79.10 123,151 98.62
account in
foreign
No response 147 0.13 12 0.11 2 0.54 4 1.29 165 0.13
Total 113,360 100 10,829 100 373 100 311 100 124,873 100
Most enterprises open their saving accounts in foreign countries, which account
for 47.46% of total enterprises. The type of opening accounts in SMEs are diverse.
Micro (54.97%) and medium enterprises (44.23%) prefer to open saving accounts in
foreign countries, while small (47.35%) and large enterprises (63.93%) select to
open current accounts (Table 2.19).
Table 2.19: Type of Accounts Opened in Foreign Countries
Type of Micro Small Medium Large Total
accounts
has
opened in
foreign
Current
245 26.20 241 47.35 21 40.83 39 63.93 546 35.07
account
Saving
514 54.97 192 37.72 23 44.23 10 16.39 739 47.46
account
Fixed
176 18.82 76 14.93 8 15.38 12 19.67 272 17.47
account
Total 935 100 509 100 52 100 61 100 1,557 100

36
About 86% of micro and 44% of small enterprises do not use proper accounting,
while 42% of medium ones use advantaged bookkeeping: Proper accounting is more
frequently used in medium and large enterprises than in micro and small enterprises.
Only 8.80% of micro enterprises use basic bookkeeping and 4.75% use normal
bookkeeping. Meanwhile, 41.28% of medium enterprises use advanced bookkeeping
and 26.81% use normal bookkeeping. Similarly, 49.52% of large enterprises use
advanced bookkeeping and 21.86% use normal accounting (Table 2.20)
Table 2.20: Accounting Practices (%)
Level Micro Small Medium Large MSME
Advance bookkeeping 0.45 7.48 41.82 49.52 1.19
Normal bookkeeping 4.75 22.01 26.81 21.86 6.32
Basic bookkeeping 8.80 26.50 25.74 23.79 10.39
None 86.00 44.00 5.63 4.82 82.11
Total 100.00 100.00 100.00 100.00 100.00
 Business registration, Tax payment and business prospects
More than half of Lao enterprises (65.12%) do not have business registration
license, which is dominated by micro enterprise: the distribution of SMEs is
diverse.75.57% of small, and 97.86% of medium and 97.11% of large enterprise have
business registration license. These enterprise are considered important with a view to
generate emphoyment and government revenue from tax payment. On the other hand,
69.42% of micro ennterprises do not have business registrations license since these
enterprises are household family business. In addition, SMEs with small turnover are
exempted from tax payment and business registration license (Table 2.21)

37
Table 2.21: Business Registration License
Business Micro Small Medium Large Total
registration Unit Share Unit Share Unit Share Unit Share Unit Share
Yes 34,052 30.04 8,184 75.57 365 97.86 302 97.11 42,903 34.36
No 78,692 69.42 2,608 24.08 8 2.14 8 2.57 81,316 65.12
No
616 0.54 37 0.34 0 0.00 1 0.32 654 0.52
response
Total 113,360 100 10,829 100 373 100 311 100 124,873 100
With respect to registration capital of enterprise, 69.69% of total enterprises do
not answer questionnaires, which are mainly dominated by micro and small
enterprises. The distribution of SMEs is diverse. 86.33% and 87.46% of medium
and large enterprises have registered capital more than LAK 35 million. Meanwhile,
73.67% and 31.78% of micro and small enterprises do not response, since these
firms do not have business registration license. Therefore, they do not have
registered capital either (Table 2.22)

38
Table 2.22: Total Registered Capital
Total Micro Small Medium Large Total
registered
capital (kip)
<=1,000,000 925 0.82 18 0.17 0 0.00 0 0.00 943 0.76
1,000,001- 6,772 5.97 274 2,53 7 1.88 1 0.32 7,054 5.65
5,000,000
5,000,001- 5,984 5.28 473 4.37 5 1.34 1 0.32 6,463 5.18
10,000,000
10,000,001- 2,200 1.94 198 1.83 1 0.27 2 0.64 2,401 1.92
15,000,000
15,000,001- 2,518 2.22 343 3.17 3 0.80 0 0.00 2,864 2.29
20,000,000
20,000,001- 734 0.65 130 1.20 0 0.00 1 0.32 865 0.69
25,000,000
25,000,001- 1,622 1.43 267 2.47 0 0.00 1 0.32 1,890 1.51
30,000,000
30,000,001- 331 0.29 72 0.66 1 0.27 0 0.00 404 0.32
35,000,000
More than 8,757 7.72 5,613 51.83 322 86.33 272 87.46 14,964 11.98
35,000,000
No response 83,517 73.67 3,441 31.78 34 9.12 33 10.61 87,025 69.69
Total 113,360 100 10,829 100 373 100 311 100 124,873 100
The fixed costs of capital stocks are diverse with respect to the size of enterprises.
30.01% of micro enterprises have fixed cost between LAK 1 and 5 million. On the
other hand, majority of other enterprises sizes have fixed costs that are greater than
LAK 35 million. Among these, small, medium and large enterprises account for
64.30%, 81.77% and 81.99% of total enterprises respectively. (Table 2.23)

39
Table 2.23: Fixed Costs of Capital Stocks
Fixed cost Micro Small Medium Large Total
(kip) Unit Share Unit Share Unit Share Unit Share Unit Share
<=1,000,000 12,814 11.30 113 1.04 0 0.00 1 0.32 12,928 10.35
1,000,001-
34,023 30.01 564 5.21 6 1.61 1 0.32 34,594 27.70
5,000,000
5,000,001-
19,649 17.33 773 7.14 1 0.27 2 0.64 20,425 16.36
10,000,000
10,000,001-
7,782 6.86 403 3.72 0 0.00 0 0.00 8,185 6.55
15,000,000
15,000,001-
6,600 5.82 547 5.05 3 0.80 3 0.96 7,153 5.73
20,000,000
20,000,001-
2,695 2.38 250 2.31 1 0.27 1 0.32 2,947 2.36
25,000,000
25,000,001-
4,290 3.78 445 4.11 3 0.80 0 0.00 4,738 3.79
30,000,000
30,000,001-
887 0.78 100 0.92 0 0.00 1 0.32 988 0.79
35,000,000
More than
19,433 17.14 6,963 64.30 305 81.77 255 81.99 26,956 21.59
35,000,000
No response 5,187 4.58 671 6.20 54 14.48 47 15.11 5,959 4.77
Total 113,360 100 10,829 100 373 100 311 100 124,873 100
Most enterprises (53.96%) spend a small amount of variable costs between LAK
1 and 5 million per month to support their production and services. Regardless of
size, micro, small, medium and large firms use more than LAK 35 million for
variable costs, which is mainly to buy raw materials and pay for labour costs.

Concretely, small, medium and large enterprises account for 47.49% and 75.88% of
total enterprises respectively. (Table 2.24)

40
Table 2.24: Variable Costs
Variable Micro Small Medium Large Total
cost (kip) Unit Share Unit Share Unit Share Unit Share Unit Share
<=1,000,000 28,122 24.81 501 4.63 4 1.07 1 0.32 28,628 22.92
1,000,001-
37,434 33.02 1,298 11.99 8 2.14 2 0.64 38,742 31.03
5,000,000
5,000,001-
16,277 14.36 1,202 11.10 3 0.80 4 1.29 17,486 14.00
10,000,000
10,000,001-
5,816 5.13 469 4.33 4 1.07 4 1.29 6,293 5.04
15,000,000
15,000,001-
5,373 4.74 708 6.54 6 1.61 1 0.32 6,088 4.88
20,000,000
20,000,001-
1,694 1.49 208 1.92 0 0.00 0 0.00 1,902 1.52
25,000,000
25,000,001-
2,798 2.47 444 4.10 2 0.54 2 0.64 3,246 2.60
30,000,000
30,000,001-
417 0.37 91 0.84 1 0.27 2 0.64 511 0.41
35,000,000
More than
10,473 9.24 5,143 47.49 290 77.57 236 75.88 16,142 12.93
35,000,000
No response 4,956 4.37 765 7.06 55 14.75 59 18.97 5,835 4.67
Total 113,360 100 10,829 100 373 100 311 100 124,873 100
With respect to adding fixed costs to total costs, 81.36% of total enterprises do
not answer this question. This means that many enterprises do not have any plan to
expand their production in thhe long run. By analysing more details about SME, we
find that 20.91% and 22.44% of medium and large enterprises add fixed costs to
total costs with more than LAK 35 million. Meanwhile, 12.42% of micro
enterprises add fixed costs to total costs with LAK 1 to 5 million (Table 2.25)

41
Table 2.25: Adding Fixed Costs in Total Costs
Adding the Micro Small Medium Large Total
fixed cost
(kip)
<=1,000,000 6,872 6.06 184 1.70 1 0.27 0 0.00 7,057 5.65
1,000,001-
7,006 6.18 452 4.17 2 0.54 0 0.00 7,460 5.97
5,000,000
5,000,001-
2,743 2.42 406 3.75 4 1.07 1 0.32 3,154 2.53
10,000,000
10,000,001-
821 0.72 124 1.15 2 0.54 1 0.32 948 0.76
15,000,000
15,000,001-
787 0.69 184 1.70 3 0.80 0 0.00 974 0.78
20,000,000
20,000,001-
260 0.23 62 0.57 1 0.27 0 0.00 323 0.26
25,000,000
25,000,001-
343 0.30 105 0.97 0 0.00 0 0.00 448 0.36
30,000,000
30,000,001-
58 0.05 21 0.19 0 0.00 0 0.00 79 0.06
35,000,000
More than
1,448 1.28 1,231 11.37 78 20.91 76 24.44 2,833 2.27
35,000,000
No response 93,022 82.06 8,060 74.43 282 75.60 233 74.92 101,597 81.36
Total 113,360 100 10,829 100 373 100 311 100 124,873 100
Lump-sum tax business registration is widely applied to enterprises in Lao PDR:
enterprises tend to apply accured tax registration, while small enterprises prefer lump-
sum tax registration. Focusing on the size of enterprises, we find that 65.72% and
51.88% of micro and small enterprises are under lump-sum tax registration. Under
this system negotiation between tax officials and enterpreneurs is widely observed
since a book keeping system is lacking in some firms. 76.94% and 80.06% of medium

and large enterprises apply to accured tax registration, which is considered to be
more transparents, because they have bookkeeping on records of turnover and
profit (Table 2.26)

42
Table 2.26: Type of Business Registration and Tax Certificate
registration
and tax Unit Share Unit Share Unit Share Unit Share Unit Share
certificate
Accrued tax
13,515 11.92 4,455 41.14 287 76.94 249 80.06 18,506 14.82
registration
Lump sum tax
74,499 65.72 5,618 51.88 84 22.52 57 18.33 80,258 64.27
registration
Daily tax
14,124 12.46 280 2.59 0 0.00 0 0.00 14,404 11.53
registration
No business
3,026 2.67 109 1.01 0 0.00 0 0.00 3,135 2.51
certificate
No response 8,196 7.23 367 3.39 2 0.54 5 1.61 8,570 6.86
Total 113,360 100 10,829 100 373 100 311 100 124,873 100
The census surveys also asked opinions of enterprises about the trend of
businesses. The finding suggests that 61.46% of enterprises are confident that
business trends will increase: medium (76.94%) and large enterprises (72.99%) are
more optimistic about business trends than micro (60.83%) and small enterprises
(67.25%). On the other hand, 27.77% and 21.17% of micro and small enterprises
anticipate that business trends remain the same, while only 14.12% and 13.50% of
medium and large enterprises agree with this anticipation. (Table 2.27)
Table 2.27: Anticipation of Business Trends
trends Unit Share Unit Share Unit Share Unit Share Unit Share
Increase 68,954 60.83 7,283 67.25 287 76.94 227 72.99 76,751 61.46
Remain
31,480 27.77 2,292 21.17 53 14.21 42 13.50 33,867 27.12
the same
Decreasez 11,783 10.39 1,167 10.78 26 6.97 35 11.25 13,011 10.42
No
1,143 1.01 87 0.80 7 1.88 7 2.25 1.,244 1.00
response
Total 113,360 100 10,829 100 373 100 311 100 124,873 100

43
 Access to Information Technology and Finance
A small number of micro and small enterprises use information technology for
their business: 96.47% of micro enterprises do not use computer to run their
business. However, the number of enterprises that use computers to run their
businesses ted to increase as the size of enterprises is larger. On the other hand,
85.52% of medium and 89.71% of large enterprises use computers. (Table 2.28)
Table 2.28: Computer Use to Run Businesses
Enterprises Micro Small Medium Large Total
have
computer
to use for Unit Share Unit Share Unit Share Unit Share Unit Share
running
business
Yes 3,349 2.95 3,816 35.24 319 85.52 279 89.71 7,763 6.22
No 109,358 96.47 6,982 64.48 53 14.21 30 9.65 116,423 93.23
No
653 0.58 31 0.29 1 0.27 2 0.64 687 0.55
response
Total 113,360 100 10,829 100 373 100 311 100 124,873 100
91.77% of total enterprises have 1-10 computers, which are mainly dominated
by micro (97.01%) and small enterprises (92.09%). Only 16.93% and 19.35% of
medium and large enterprises have 11-20 computers respectively (Table 2.27). We
also find that 78.85% of total staffs use computers to run business. With respect to
the share of staff that use computers, medium (92.83%) and large enterprises
(92.83%) enterprises are more than micro (71.39%) and small enterprises (83.46%)

44
Table 2.29: Number of Computer used in Enterprises
Number of Micro Small Medium Large Total
computer
(unit)
1–10 3,279 97.91 3,514 92.09 206 64.58 125 44.80 7,124 91.77
11–20 49 1.46 167 4.38 54 16.93 54 19.35 324 4.17
21–30 6 0.18 58 1.52 20 6.27 25 8.96 109 1.40
31–40 3 0.09 37 0.97 8 2.51 8 2.87 56 0.72
41–50 1 0.03 15 0.39 6 1.88 15 5.38 37 0.48
51–60 1 0.03 2 0.05 5 1.57 13 4.66 21 0.27
61–70 0 0.00 1 0.03 4 1.25 2 0.72 7 0.09
71-80 0 0.00 2 0.05 3 0.94 6 2.15 11 0.14
More than
2 0.06 2 0.05 6 1.88 29 10.39 39 0.50
80
No
8 0.24 18 0.47 7 2.19 2 0.72 35 0.45
response
Total 3,349 100 3,816 100 319 100 279 100 7,763 100
More than half of total enterprises are using internet to run their business, and
it becomes a significant tool for improving their business performance: 55.65% of
total enterprises use internet to run their businesses. With respect to the share of
internet utilisation, micro (42.07%) and small enterprises (62.81%) are less than
medium (83.07%) and large enterprises (89.25%). Since medium and large
enterprise generally have more complicated working system, computers are a
significant tool for ensuring smooth operation for daily works (Table 2.30).

45
Table 2.30: Enterprises with Internet
Enterprises Micro Small Medium Large Total
with
internet for
running
business
Use 1,409 42.07 2,397 62.81 265 83.07 249 89.25 4,320 55,65
Not Use 1,142 34.10 930 24.37 31 9.72 20 7.17 2,123 27.35
No 798 23.83 489 12.81 23 7.21 10 3.58 1,320 17.00
response
Total 3,349 100 3,816 100 319 100 279 100 7,763 100
With respect to the number of computers connecting with internet, 90.53% of
total enterprises have 1-10 computers, which are dominated by micro (97.02%) and
small enterprises (92.62%). It is followed by medium (70.19%) and large
enterprises (55.42%). The number of enterprises using internet tend to increase, as
shown by the finding that 15.09% of medium and 16.78% of large enterprises have
10-20 computers connecting with internet respectively. (Table 2.31)
Table 2.31: Enterprises with Internet Accesss
Number of Micro Small Medium Large Total
computer
(unit)
1–10 1,367 97.02 2,220 95.62 186 70.19 138 55.42 3,911 90.53
11–20 33 2.34 123 5.13 40 15.09 42 16.87 238 5.51
21–30 4 0.28 30 1.25 10 3.77 21 8.43 65 1.50
31–40 2 0.14 14 0.58 9 3.40 7 2.81 32 0.74
41–50 0 0.00 3 0.13 4 1.51 10 4.02 17 0.39
51–60 0 0.00 2 0.08 5 1.89 4 1.61 11 0.25
61–70 0 0.00 0 0.00 2 0.75 3 1.20 5 0.12
71-80 1 0.07 1 0.04 1 0.38 5 2.01 8 0.19
More than
2 0.14 0 0.00 5 1.89 18 7.23 25 0.58
80
No
0 0.00 4 0.17 3 1.13 1 0.40 8 0.19
response
Total 1,409 100 2,397 100 265 100 249 100 4,320 100

46
88% of micro, 73% of small and 67% of medium enterprises do not have
access to finance from financial institutions: Limited access to finance remains a
key challenging for all sizes of enterprises in Lao PDR. This is particularly more
pronounced in micro and small enterprises, only 10.70% and 25.60% could obtain
loans from financial institutions in 2013 respectively. Medium (29.76%) and large
enterprises (36.66%) have a slightly better access to finance than micro and smal
enterprises (Figure 2.2)
100%
90%
80%
70%
72.8 66.8
59.5
60%
87.5
50%
40%
30%
20%
25.6 29.8
36.7
10%
10.7
0%
Micro (n=113360) Small (n=10829)Medium (n=373) Large (n=311)
Access Lack of access
Figure 2.2: Access to Finance of Enterprises, 2013
Domestic commercial banks are the main source of borrowing for enterprises:
Domestic commercial banks continue to dominate the loan market for enterprises in
Lao PDR (69%). The other main important sources are village funds (13%) and
relative and friends (13%) Borrowing from microfinance institutions (3%) appears
with an almost negligible share (Figure 2.3)

47
2%3%
Foreign countries
13%
Micro finance
13% Relative and friends
Village funds
69%
Domestic banks
Figure 2.3: Source of Borrowing

DEVELOPMENT OF SMALL AND MEDIUM ENTERPRISES IN LAO PEOPLE’S DEMOCRATIC REPUBLIC: OPPORTUNITIES AND CHALLENGES

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