Cambodia Investment Review
Small and Medium Enterprises (SMEs) make up over 90% of the business landscape in Cambodia, providing for approximately 70% of the workforce and contributing an estimated 58% to the country’s GDP. Yet, SMEs encounter a “missing middle” dilemma, marked by considerable obstacles to expanding their businesses, fostering innovation, and engaging in international collaborations.
According to Khmer Enterprise, an entity established to provide financial and non-financial support for building a vibrant entrepreneurial ecosystem, most Cambodian SMEs traditionally invest in business using their own assets. However, this approach poses several challenges that require consideration and attention for business and economic sustainability.
First, the B2B and investment models are still limited, often leading to supply chain issues and pricing concerns. Second, more SMEs find it difficult to access their own business to determine the stages of businesses and what they need to prioritize for the business development plan. Lastly, some SMEs that wish to expand locally and internationally face challenges competing or entering the market while their business operation models are family-based.
A Vibrant Entrepreneurial Ecosystem Requires Collective Efforts From All Stakeholders
H.E. Dr. Chhieng Vanmunin, Chief Executive Officer of Khmer Enterprise said, “Khmer Enterprise has initiated several programs that respond to beneficiary demand. First, under business and networking program, Entrepreneur Support Organizations are encouraged to complement but not compete with each other.
Second, SMEs are receiving business diagnosis, due diligence, and registration, trade expos, export promotion, and grants to support SME expansion. We believe that a vibrant entrepreneurial ecosystem requires collective efforts from all stakeholders. Therefore, leveraging partnerships in such a program is one of the strategies to boost the common goal of Khmer Enterprise and relevant stakeholders to achieve the mission and attract more foreign investments.”
Read more: Khmer Enterprise’s Ecosystem Networking Day Highlights Cambodia’s Entrepreneurial Sector
Talking on their experience with SMEs, Deputy Team Leader of Swisscontact Lay Sokhuy said SMEs suffer from low productivity, limited access to information and technology, and a lack of affordable financing.
“Therefore, most SMEs have a limited ability to acquire and upgrade to new technologies in their production to improve overall productivity, putting them at a disadvantage over foreign competitors. This leads them to fall behind with modernizing business management systems, as they are either not known or not applied,” she said.
“SMEs also have a limited notion of management itself, which requires data management, planning, strategy development and an overall understanding of business activities. Business growth is further hampered by a shortage of highly skilled labour,” she added.
Sokhuy said that to overcome these challenges. SMEs need to access affordable financing and non-financial service to scale up business.
“Firstly, access to appropriate financing for SMEs is critical, particularly for entrepreneurs as they need to access both working capital and longer-term investment capital to support the growth of businesses. Thus, it requires innovative financial structures in the form of catalytic capital that are patient, risk-tolerant, concessionary and flexible to fill funding gaps.
Meanwhile, it also requires a healthy and effective entrepreneurial ecosystem where entrepreneur support organizations (ESOs) collectively provide an appropriate mix of generic and specialist resources and support that cover the entire entrepreneurial journey,” Sokhuy explained.
She noted that the next stage is for Cambodia to produce more role models and successful case studies to demonstrate how important SME contribution is to the economy.
The Importance of Understanding The Various Financing Options That Are Available
CEO of the business advisory company Aquarii BD Cambodia, Michael Tan, agreed that whilst limited access to financing can be a hindrance to the growth and competitiveness of Cambodian SMEs, it is also important to have a better awareness and understanding of the various financing options that are available and their consequential implications on business operations, control and ownership.
He also noted that when SMEs engage or interact with a foreign counterpart, whether it is for investment capital, joint venture project, or other forms of collaboration such as exporting their goods or outsourcing their services to an overseas market, they tend to overlook, dismiss or neglect to pay enough attention to the critical importance of collaboration knowhow.
“Many SMEs face difficulties when engaging with international investors or they may not understand why they are unable to progress to the next stage of the business discussion. It would help raise the chances of a successful collaboration to have a working understanding of the expected norms in international business practices, what is required for effective communication and what to watch out for in negotiation in terms of the messaging, strategy, among others. These are essential in the exploratory, discovery, deal-making and even the fulfillment stages of a business process.”
Aquarii BD, Khmer Enterprise, and Swisscontact are jointly organizing a knowledge-sharing workshop to raise awareness of some of the recurring issues, and to provide participating SMEs with practical insights and tips on how they can better access financing options, as well as to more effectively engage potential investors.
Cambodia’s premier telecommunications company, Cellcard, known for its innovative enterprise solutions tailored to businesses and SMEs, will also be sponsoring the event. As a homegrown provider, Cellcard understands the unique needs and challenges faced by local entrepreneurs and has offered its support In line with its commitment to supporting the growth and development of SMEs in Cambodia.
Scheduled for November 17, 2023, at Capri by Fraser in Phnom Penh, this event will tackle the multifaceted challenges that Cambodia’s SMEs face.
Mr. Tan said that the upcoming workshop will help to illuminate the challenges and issues that local SMEs and their foreign counterparts commonly encounter, as well as how they could be mitigated or managed to improve the chances of a successful collaboration or for the parties involved to progress to the next stage of the engagement.
The workshop will comprise two component themes. Firstly, to explore the different financing challenges encountered by SMEs, and to help them understand the various capital options and existing support programs that are available to help them progress to the next stage of their business venture.
This will be shared by Ms Sokhuy Lay, Deputy Team Leader of Enhancing Entrepreneurial Ecosystem and Investment (3Ei) at Swisscontact Cambodia, and Mr Kong Somphyvatanak, Market and Investment Manager at Khmer Enterprise. Secondly, Mr Michael Tan, Founding Director at Aquarii SG Pte Ltd & CEO of Aquarii BD Cambodia, will share his observations on the expectations, concerns, and gaps that are commonly encountered in a business discussion or engagement by both local SMEs as well as their foreign counterparts, and how these challenges and issues can be mitigated and managed.