Implementation of the value-based management for SMEs in Thailand

Abstract

Value-based management (VBM) is a set of management tools which relies on value creation concept in maximizing wealth or value for shareholders. Popularized tools under VBM are such as Economic Value Added (registered trademark), Cash Flow Return on Investment, and Shareholder Value Added. In this paper, shareholder value concept is discussed for small to medium-size companies in Thailand. These companies became more important after the Thailand economic crisis in 1997. Small and Medium-Sized Enterprises (SMEs) in Thailand account approximately for 78.2% of all enterprises in the country and bring in about 38% of the country’s GDP (Office of SMEs Promotion, 2011). Hence, Thai SMEs are a crucial part of the Thai economy. Value-orientation of the management of SMEs has not been subject of sufficient research. This research, therefore, examines the importance of the VBM tools for SMEs which typically do not have access to the capital market, and explores the motivation and benefits for SMEs managers to implement the VBM. A qualitative method was applied in this research in an attempt to find out why and how VBM was implemented in Thai SMEs to create value. The researchers examined whether the management of SMEs focused on creating value and explored the motive for managers to manage based on value creation. This research was conducted using focus group interviews and in-depth interviews with some Thai SMEs managers who participated in the 2011 Thai SMEs Expo. In this research, 30 SME companies participated in focus group interview. Out of these, 26 of them were family-owned business.The result identified internal and external factors for the implementation of VBM in Thai SMEs. Internal factors were personal financial coverage of the entrepreneur and successor problem. External factors were scarcity of capital, equity-deficit, company’s credit quality for bank loan, and other risks due to dynamic of changing global markets. Further the researchers analyzed the possibilities of implementing the VBM in small and medium enterprise by indentifying important value drivers. This analysis was conducted because of the unique characteristics of Thai SMEs. The SMEs managers were aware of shareholder value creation but they focused on a stakeholder value orientation, a broader perspective than a shareholder value orientation. This was due to the high interaction of SMEs with their environment. Researchers suggest more research on social aspects of value creation and their effect on the VBM for Thai SMEs.