Good Regulatory Practices to Support Small and Medium Enterprises in Southeast Asia

Executive summary

Southeast Asian governments have been actively promoting trade and investment linkages between domestic firms and international markets, with the aim to unlock business opportunities and bolster national productivity and competitiveness. In Southeast Asia, participation in global value chains (GVCs) has contributed significantly to economic development and employment generation as Association of Southeast Asian Nations (ASEAN) countries gain a foothold in the manufacturing and supply chain hub dubbed “Factory Asia”. Nevertheless, ASEAN governments recognise that most ‘big business’ is driven by a limited number of large firms, while small and medium-sized enterprises (SMEs) operate at a local scale. Given that SMEs account for over 90% of all businesses and the bulk of local employment, their success is important not only for boosting gross domestic product (GDP) but also for improving socio‑economic equity.

A fair, sensible and transparent regulatory environment helps SMEs thrive locally and internationally. Yet, even as regulations level the playing field among companies and protect social and environmental interests, compliance remains a challenge. Indeed, compared with large companies, SMEs are often disproportionately affected by the increasing stock and flow of regulations as they tend to have weaker adaptive capacity to comply with complex or changing regulations.

Adopting good regulatory practices (GRP) is thus more important than ever. This goes for businesses of all sizes, but especially for SMEs. GRP use tools in the regulatory cycle – such as administrative simplification, impact assessments, and stakeholder engagement – to improve the quality of the regulatory environment for everyone.

This report is the first comprehensive stocktaking of developments in implementing GRP to support SMEs in ASEAN countries.

ASEAN governments recognise the importance of good regulatory practices (GRP)

The report finds that ASEAN countries by and large recognise the importance of GRP and are increasingly streamlining its tools and methodologies into regulatory design and delivery. Almost all countries in the region have initiated some kind of administrative burden reduction programme, and all countries practice stakeholder engagement, as well as offer at least a few regulatory processes that can be completed online.

Some countries have introduced regulatory policies targeted at SMEs, while others have opted to level the regulatory playing field for businesses of all sizes. A dedicated SME regulatory policy may not be necessary as long as the general regulatory environment is fair, transparent, clear and effective. The diversity of the ten ASEAN countries means that governments necessarily tailor the use of GRP to their unique regulatory contexts.

While all ten ASEAN countries apply GRP, the consistency and quality of their implementation are seldom monitored or evaluated. Even when GRP is intended to be applied to all government agencies and arm’s-length bodies, this may not be the case in practice. Very few countries conduct ex post evaluations of regulations.

Key recommendations:

• The purpose and impact of regulations – both existing and proposed – should be clearly set out, justified and expressly communicated to the public via systematic and targeted stakeholder consultations.

• Ex ante regulatory evaluation, including regulatory impact evaluations, should be followed by ex post evaluation to ensure continuous relevance.

• Regulatory enforcement is crucial for improving overall regulatory compliance. Penalties for non-compliance should be proportional and calibrated to facilitate compliance.

SMEs are highly heterogeneous and have different needs for regulatory support

SMEs are highly heterogeneous: some prefer to serve domestic demand while others target international markets; some are bound by local resources while others rely on imports; some sell products and services directly to their neighbours; others trade entirely on line. As a result, some SMEs want governments to help them do business locally, while others want support for accessing international trade. Governments will continue to be challenged to devise regulatory policies and approaches that can serve a wide and likely increasingly complex range of SME needs in both local and international contexts.

Key recommendations:

• Policy makers must continuously update their understanding of SMEs’ needs, which are more dynamic than ever and may cut across sectors or jurisdictions.

• Regulatory interventions should be tailored to the sector(s) in which SMEs operate and the tools that they use, rather than administered according to simple employee count or revenue.

• Encourage SMEs to participate in and contribute to government policies and programmes by putting more emphasis on serving SMEs, which will also help build trust.

The diversity of ASEAN governance structures requires adaptable and forward‑looking GRP tools and approaches

ASEAN countries vary greatly in terms of governance, institutional organisation and development priorities as well as levels of economic development and integration. Correspondingly, government approaches to setting regulatory policy and using GRP also differ from country to country. Yet, the region’s aspiration to achieve a single market means that, at some point, national regulatory policies will need to be complementary, if not standardised across countries. As ASEAN advances towards regional integration, further challenges lie ahead for regulatory co-ordination and implementation.

Key recommendations:

• More co-operation on regulatory harmonisation is required to unlock the full potential of an inclusive, connected ASEAN economic community. Regulations may not be uniform, but they should be complementary.

• Anticipate regional regulatory requirements in the development and application of national regulations – whether on processes or standards – to help smooth the learning curve between local and international trade.

• Take advantage of digital technologies to deliver smarter policies, regulations and services.