1. APEC Ministers and their representatives responsible for SMEs from Australia; Brunei Darussalam; Canada; Chile; the People’s Republic of China; Hong Kong, China; the Republic of Indonesia; Japan; the Republic of Korea; Malaysia; Mexico; New Zealand; Peru; the Republic of the Philippines; Russian Federation; Singapore; Chinese Taipei; Thailand; the United States of America; and Viet Nam gathered during 7-8 August 2003 in Chiang Mai, Thailand for The Tenth APEC Ministerial Meeting on Small and Medium Enterprises (SMEs).

2. The objectives of the meeting were to discuss:

• key success factors in strengthening the APEC Entrepreneurial Society including

1) entrepreneurship development

2) business creation, capital formation and financial access for SMEs and micro-enterprises and

3) capacity building for and addressing the impediments to SME exporters

and to endorse:

• the Action Plan to Promote Micro-Enterprise in APEC economies

• further co-operation between APEC SME, other APEC fora and sub-fora

3. Ministers congratulated Thailand for successfully hosting the 1st Sub-Group on Micro-enterprises in the 17th APEC SME Working Group on 4 August 2003. The Sub-Group reaffirmed the unique needs of micro-enterprises which require policy responses different from those applying to small and medium enterprises. The Action Plan to Promote APEC Micro-Enterprise as proposed by the Sub-Group and subsequently endorsed by the Ministers is wide-ranging and identifies several paths for the development of policies to support and grow micro-enterprises. Ministers also instructed their officials and agencies to include the micro-enterprise perspective in all projects and initiatives undertaken by the SME Working Group.

I APEC ENTREPRENEURIAL SOCIETY AND ENTREPRENEURSHIP DEVELOPMENT

Entrepreneurial Society and Entrepreneurs

4. Ministers stressed that a vibrant "entrepreneurial society" is central to the growth of the APEC economies. Substantial entrepreneurial activity generates demand for new services, products, and jobs. The strength of an entrepreneurial society is manifested through the number of business start-ups and the sustainability of SMEs and micro-enterprises. The dynamism of an entrepreneurial society plays a catalytic role to spur development of micro-enterprises and SMEs.

5. Ministers recognized that the definition of an entrepreneur goes beyond the conventional meaning of "business owner and operator" and that risk-taking individuals are the driving force behind entrepreneurship. The development of a dynamic entrepreneurial society requires individuals who are "innovative, visionary, and ready to take the risk of starting-up a new business." Policy-makers are encouraged to promote this definition of "entrepreneur" in an effort to foster entrepreneurship.

6. Emphasizing the strong correlation between entrepreneurial activities and economic growth, Ministers expressed the wish for more entrepreneurs among APEC’s member economies. As reported in the Profile of SMEs and SME Issues in APEC 1990-2000, on average the ratio of entrepreneurs per population in APEC’s developing economies is 1: 120, compared to about 1: 20 in APEC’s developed economies. To address this shortage, Ministers encouraged APEC fora and sub-fora to identify key success factors and relevant policy measures that could lead to high levels of entrepreneurial activities across APEC economies. Ministers also commended the initiative between Thailand and Chile for theme continuity in the APEC Chairmanship, by working on a multi-year program for entrepreneurship.

7. Ministers commended the process of building private-public partnership to address the needs of entrepreneurs in APEC. It has been shown that entrepreneurs and SMEs are a major engine for growth and jobs. There are about 240 million people in the APEC Asian region who attempt to start a business each year. There is a considerable shortage of skilled and experienced entrepreneurs in the region, which needs about 60 million more experienced entrepreneurs. If these nascent entrepreneurs can get better access to products and services aimed at meeting their information, advisory and functional management needs, then they will be more likely to succeed. Ministers commended the efforts of Thailand, U.S.A, PECC and ABAC to address this problem by exploring the opportunities for an APEC Entrepreneur Consortium.

8. Ministers acknowledged the importance of business incubation in fostering entrepreneurship and new businesses. They applauded the success of the First APEC Incubator Forum hosted by Chinese Taipei earlier this year. Ministers encouraged APEC economies to use the project’s outcomes to improve business incubation systems, and supported the continued effort of Chinese Taipei in organizing the Second APEC Incubator Forum next year.

9. Ministers welcomed the "APEC SME Business Network Promotion Forum" hosted by Japan this year for the purposes of formulating co-operative business networks and creating new business opportunities in the APEC region. Ministers also welcomed the forum on the collaboration between industry, academia and government in Fukushima prefecture last year.

Globalization and Entrepreneurship

10. In 2002, APEC Leaders and Ministers recognized the importance of helping APEC economies benefit from globalization through economic and technical cooperation and capacity building. SME Ministers reiterated the importance of educational systems and training opportunities to assist and enable individuals and would-be entrepreneurs to understand the dynamics of the global economy.

11. Ministers stressed that in order to cope with the challenges of globalization, APEC economies should focus on developing networks among micro, small and medium enterprises (MSME) and promotional agencies, MSME banks and MSME associations.

a) Policy Environment

12. Ministers acknowledged that entrepreneurs are products of their environment and that policy-makers are in part responsible for fostering an environment conducive to the growth of the entrepreneurial spirit. The entrepreneurial environment is directly affected by: regulatory and tax burdens; labor market legislation; competition policy and legal conditions. Each economy is encouraged to speed-up efforts towards the removal of barriers to entrepreneurial behavior and not to introduce regulations that overly penalize business failure.

13. Ministers stressed that tax policy is a crucial element in promoting new business development. Unfavorable taxation policies are likely to deter the development of MSMEs and prevent capital reinvestment that could be used to expand the operations necessary for long-term business survival.

b) Education and Training

14. Ministers emphasized that culture is an important determinant of entrepreneurial spirit. As significant variations of entrepreneurial attitudes exist across the APEC economies, policy-makers have a major role to play to foster entrepreneurial activities through education and training. Ministers called upon opinion leaders and civil society to publicly highlight entrepreneurship as a valuable way of life that enriches the community as a whole.

15. Entrepreneurial activities require both business opportunity and entrepreneurial capacity. Entrepreneurial education and training should focus on:

• identify enabling individuals and would-be entrepreneurs to comprehend changes in their national and global economies and identify business opportunities; and

• assisting individuals and would-be entrepreneurs in developing the skills necessary to pursue business opportunities.

16. In response to interest in learning more about fostering entrepreneurship, supporting a dynamic SME sector, and creating jobs, SME Ministers endorsed the second "U.S. Voluntary Visitors Program for APEC SME Government Officials" to be implemented in June 2004. Ministers also welcomed the involvement of participating officials in sharing best practices for fostering entrepreneurship learned in their home markets. They look forward to a report on the outcomes of this program at the 2004 APEC SME Ministerial in Santiago. Ministers also welcomed the information shared on the U.S. Small Business Administration’s Small Business Development Center Program, as it provides a model for co-operative public-private sector delivery of counseling, training and technical assistance in all aspects of business management for current or potential small business owners.

c) Innovation

17. Ministers stressed that innovation plays a key role in facilitating the creation of high-growth firms and is directly associated with the levels of competitiveness of SMEs and micro-enterprises. Ministers noted that several economies have programs aimed at encouraging private sector research and development. Furthermore, Ministers considered that there may be scope for further initiatives in this area if economies agreed to extend the definition of research and development to cover project design and services.

d) Capital Formation and Financing for Entrepreneurship

18. Ministers observed that entrepreneurship is intrinsically a high-risk activity that requires appropriate financing facilities. They encouraged APEC policy-makers and APEC fora and sub-fora to seek ways and means to support the expansion of such financing facilities.

19. Ministers welcomed the sharing of lessons learned in trying to build efficient capital markets and successful venture capital sectors, where SMEs can access outside equity funding to develop and expand their businesses. Various sources of equity capital available to SMEs were explored, along with best practices of venture investors and seasoned entrepreneurs. Successful enterprises can access funds beyond the capital provided by family and friends and private credit in order to build thriving companies.

20. Ministers emphasized the need to develop a capital market that encourages people to invest savings in new business formation or business expansion. In creating an efficient capital market environment, economies need to encourage policies that develop confidence, transparency, competition and innovation. This environment is achieved by: reducing burdensome regulations; increasing transparency in standards, regulations and financial transactions; and by ensuring access to information for investors and businesses.

21. APEC economies can encourage venture investing by providing favorable tax treatment, reducing government regulations, offering public-private investment programs, enforcing intellectual property rights regulations, promoting corporate responsibility and eliminating corruption. These efforts can facilitate the provision of a significant source of financing for entrepreneurs.

22. Ministers welcomed Chinese Taipei’s proposal for an APEC Symposium on "Best Practices for Financing Chains" to be held in Taipei later date this year, and encouraged this Symposium to map-out "Best Practice Guidelines for Financing Chains" for APEC member economies to apply in their future activities.

23. Ministers support the sponsorship and promotion of investment fora and entrepreneur networks, for information and educational purposes. This will facilitate the formation of angel investment clubs, venture capital conferences and dinner clubs, and will help form angel networks. At investment seminars, diverse groups of investors can discuss their investment criteria and perspectives on how to best allocate funds.

24. Ministers encouraged member economies to expand the local sponsorship of investment fora on a regional basis and supported the development of regional networking conferences and activities where venture markets are already advanced. One of the most important criteria in developing successful venture capital companies is to employ business managers who can prepare and analyze business plans. The suggested regional networking conference activities could help companies form partnerships and strategic alliances to recruit and train business managers, access venture capitalists in the region, and facilitate local entrepreneurial environment. If member economies choose to design and implement such venture capital-related activities, Ministers suggested that they take the form of public-private partnerships.

e) Micro-Finance and Business Development Services

25. Ministers recognized that micro-finance plays an important role in micro-enterprise development, particularly as an instrument to reduce the "financial exclusion" often experienced by micro-enterprises in the APEC economies. As an economic development strategy, micro-finance encourages income-generating activities, assists entrepreneurs in stabilizing existing sources of income and enables micro-enterprises to grow into small businesses. Ministers expressed support for the development of market-based micro-finance that provides MSMEs with micro-loans and other financial services on a sustainable basis with more flexible terms than those offered by traditionally risk-averse banks.

26. Ministers observed that linking access to finance with business development assistance is an effective way to improve entrepreneurial behavior and build credit histories. This linkage increases entrepreneurs’ chances of running successful businesses and becoming well-established customers of the finance system.

27. Ministers noted that Micro Finance Institutions (MFIs) play a significant role in the financial services sector. To enhance the capability of MFIs in the region, there should be co-operation among APEC economies for strengthening the MFIs, including the exchange of best practices among MFIs.

28. Ministers also considered that there should be a clear policy framework and development plan for a micro-finance system in APEC economies where the need exists for the extension of the financial system to incorporate the financially excluded.

III CAPACITY BUILDING FOR AND ADDRESSING IMPEDIMENTS TO SME EXPORTERS

29. Ministers acknowledged the substantial contribution of SMEs to trade in the APEC region and the potential benefits in economic development to be gained through enhancing the participation of SMEs in regional export markets. Reducing and removing impediments for SMEs and micro-enterprises to enter international markets is crucial to the development of an entrepreneurial society and the national economy. It is also crucial to rectifying the under-representation of SMEs in international trade.

30. Ministers also encouraged member economies to assist SMEs and entrepreneurs who want to expand their business or relocate internationally, by means of advisory services or financial services.

31. Ministers welcomed work underway in the APEC SME Working Group to identify and remove regulatory and other non-tariff barriers to trade for SMEs. This has the potential to deliver substantial gains in regional economic development and employment growth. Ministers encouraged APEC Working Groups and sub fora to liaise closely with and support the endeavors of the SME Working Group to facilitate trade for SME exporters. In this regard, Ministers asked APEC Senior Officials to set- up a follow-up mechanism, aimed at reporting progress on the developments to the APEC Ministerial Meeting in 2004.

32. In this regard, Ministers welcomed SME-focused symposiums and workshops with the Sub Committee on Standards and Conformance (SCSC), Government Procurement Experts Groups (GPEG) and a proposed Trade Policy Dialogue with the Market Access Group (MAG) in 2004. Ministers also commended Australia for its series of self-funded seminars in 2003 on "Growing the APEC SME Exporter Community", which provided an opportunity for member economies to gain a greater appreciation from APEC small businesses, small business associations and industry groups of their views on how APEC could tackle the important issue of identifying and reducing impediments to trade for regional small businesses.

Future Actions to Support Capacity Building and Address Impediments to SME Exporters

33. Successful encouragement of entrepreneurial activity includes the creation of an environment where entrepreneurs can effectively network and provide information to public officials on barriers to growth. Information on technical standards development and how to comply with various foreign standards, rules and regulations are of critical importance to small businesses. SME Ministers approved the U.S. proposal to enhance transparency and information sharing on standards and regulations by organizing a "U.S. Standards Training Program for APEC SME Government Officials" in Washington, DC in 2004. Ministers would welcome a report on outcomes of this educational program at the 2004 APEC SME Ministerial Meeting in Santiago.

34. SME Ministers welcomed the proposal of Brunei Darussalam to host a workshop for SME Program Managers on "Reducing SMEs’ Compliance Cost" in 2005.

35. Ministers also welcomed Australia’s proposal for a research project to evaluate options for the more effective identification and monitoring of impediments to SME export activity. Ministers encouraged all member economies to co-operate and actively participate in the project.

36. Ministers welcomed the publication of the "Profile of SMEs and the Issues in APEC 1990-2000", and commended the efforts made by Chinese Taipei and PECC.

IV APEC MICRO-ENTERPRISE ACTION PLAN

37. In recognition of the need to highlight micro-enterprise-related activities throughout the APEC region, Ministers endorsed the terms of reference for the Sub-Group on Micro-Enterprises of the SME Working Group, the APEC Micro-Enterprise Action Plan, and the Micro-Enterprise Annual Work Plan. Ministers welcomed the initiative to promote micro-enterprise development with an emphasis on economic growth and shared prosperity.

38. Ministers recognized that APEC micro-enterprises face significant obstacles including the lack of :

• knowledge and information

• an enabling policy environment

• access to markets

• access to finance

• basic skills and management techniques

• access to modern technology, particularly information and communications technology

• strong networks.

39. Ministers adopted the Action Plan’s guidelines for micro-enterprise development.

40. Ministers adopted the proposed Micro-Enterprise Annual Work Plan which includes the following activities:

• A self-funded workshop on Indonesian Best Practices in Commercial Micro-Finance

• Two APEC-funded projects, namely, the Indonesian Project in Micro- Finance and the Korean Project on Enabling a Micro-Enterprise Information Technology Environment

• Further research and policy discussions on collaborations with International Financial Institutions to promote micro-enterprises in APEC and an enabling regulatory framework

• Organizational arrangements for the Sub-Group.

41. Ministers complimented the APEC SME Working Group and the APEC SCSC for holding a formal dialogue. It is realized that the survival of SMEs is dependent on their ability to compete in the global market place, and in particular to ensure that their products are of a high quality and reliability. Standards and conformance issues are critical to SMEs, especially in supporting those in the exporting sector or those seeking to cut production costs. Ministers encouraged both parties to continue their regular dialogue to share experiences and to establish priority work areas.

42. Ministers applauded the APEC SME Working Group for its collaboration with the APEC Finance Ministers’ Technical Working Group. This co-operation helped identify common opportunities and challenges in SME- and micro-financing experienced by APEC member economies, thus promoting awareness of financing constraints in the region.

43. Ministers agreed that collaboration between APEC Finance Ministers and APEC SME Ministers will assist SMEs to improve their abilities to gain access to capital. SME Ministers encouraged the early-stage collaboration initiated by the SME Working Group Chair to continue. SME Ministers noted the report by the Finance Ministerial Technical Working Group to the SME Working Group. Two possible areas of co-operation for advancing the work in developing SMEs are:

• sharing information and expertise, and providing trade facilitation; and

• fiscal and financial co-operation.

Securitization

44. Ministers supported further investigation of Regional Bond Markets and believe that SME loans in APEC financial institutions could be used to improve liquidity in the Regional Bond Market. If new debt instruments are to be created for the Regional Bond Market, SME loans could be one type of collateral for new debt instruments.

45. Ministers acknowledged the role of SMEs in supporting economic activities and sustainable development. Ministers also agreed to co-operate closely with APEC Finance Ministers to support the development of SME businesses in the APEC region. In complementing the work of the APEC Finance Ministers, SME Ministers agreed to provide the support necessary to promote the process of sharing information. This information exchange is crucial to improving the production and management capabilities of micro-enterprises and SMEs.

46. Ministers also supported the establishment of a network among APEC SME Financing Institutions. As a first step, Ministers acknowledged the on-going discussion concerning the signing of the Memorandum of Understanding on Co-operation among the APEC Financial Institutions Dealing with SMEs.

47. Ministers welcomed the participation of the OECD as a guest at the APEC SME Working Group. In its role as a central body for economic co-operation and development in advanced economies, the work of OECD Working Party on SMEs and Entrepreneurship benefits SMEs in both APEC and OECD. Ministers appreciated the OECD’s efforts to work with the SME Working Group on future co-operation between OECD and APEC with the aim of developing a draft Action Plan for discussion at the SME Working Group Meeting to be held in October 2004 in Chile.

Collaboration with Other Related Organizations

48. Ministers recognize the importance of both private and public APEC SME supporting agencies. They nonetheless reckoned that the scope of SME development is not limited only to SME supporting entities, but are is related to the mechanism of other supporting organizations, both private and public. In some economies, those supporting organizations are the Ministry of Finance, Ministry of Trade, Ministry of Economic Development, Ministry of Industry etc. Therefore, Ministers agreed to support the closer collaboration of APEC SME Working Group with other organizations working on issues related to SMEs.

APEC Business Advisory Council (ABAC)

49. APEC Ministers welcomed the participation and recommendations from the APEC Business Advisory Council (ABAC) and invited a closer collaboration. In addition to working closely with the SME Working Group ABAC has also started collaborating with the Human Resource Development Capacity Building Network, as part of its outreach. Many issues for small businesses overlap with capacity building issues. Ministers recognized the three SME priority areas for the ABAC Capacity Building Working Group for 2003 and the following recommendations:

• Promoting management education and skills training for SMEs and Micro-Finance Institutions by:

• strengthening the APEC Training and Certification for Small Business Counselors (APEC IBIZ)

• a closer collaboration between the SME Working Group and other APEC Working Groups such as APEC Human Resource Development Working Group

• sharing best practices, especially through on-line training and distance learning

• enhancing the management skills within micro-finance institutions

• Facilitating access to information and communications technology for SMEs and micro-enterprises by:

• better access to ICT information and advice

• support for investment for ICT

• promoting the adoption of e-commerce

• completing the APEC SME Portal Hub

• Promoting venture capital for SMEs by:

• encouraging a policy dialogue on best practices related to institutions, policies and regulations associated with the development of venture capital markets.

Women’s Leaders Network (WLN)

50. More than 450 members of the APEC Women Leaders Network met in Chiang Mai from 30 July to 3 August 2003. Ministers acknowledged the value of the WLN and the efforts being made in many APEC economies to encourage and strengthen women’s entrepreneurship, and urged member economies to continue to address socio-cultural values and gender relations with a view to enhancing and strengthening women’s contribution to the global economy.

51. In many APEC economies women-owned enterprises make up more than half of the total number of micro-enterprises and SMEs. Economies should acknowledge the significant contributions and benefits of women’s entrepreneurship as noted in the APEC project on sex disaggregated data.

52. Barriers, limitations and constraints such as access to markets and finance supply chains that prevent or lessen full participation among women in entrepreneurship should be eliminated. Management and technical training for women entrepreneurs should be easily accessible, affordable and available on flexible terms, maximizing the opportunities offered by e-learning and new technologies for skill-building. Appropriate information systems and technology for rural and under-served women should also be encouraged and made available to promote micro and small entrepreneurship among women.

53. Ministers supported the recommendation of the SME Working Group to allow the WLN to be a guest at future meetings of the Sub-Group on Micro-Enterprises.

54. Ministers welcomed private initiatives for international consortia of banks aiming at raising financial sector competence and awareness regarding financing of women entrepreneurs.

55. APEC economies are encouraged to conduct appropriate research regarding participation by SMEs and women entrepreneurs in international trade.

56. Ministers encouraged APEC economies to compile, analyze and disseminate best practices specific to women entrepreneurs at various levels (micro, small, medium as well as large enterprises), to serve as an inspiration and provide valuable lessons for emerging women entrepreneurs.

SME Business Forum

57. The APEC SME Business Forum 2003 was held during 4-7 August 2003 in Chiang Mai, Thailand with 474 delegates from APEC member economies in attendance. Ministers welcomed the participation and recommendation of the SME Business Forum that, in order to strengthen entrepreneurship, policy-makers should focus resources on an integrated approach, combining human resource management, marketing, R&D, and tailored financial assistance.

58. Ministers also recognized that Thailand’s OTOP (One Tambon/Village One Product) promotion - based on the experience of Japan - is a good model that could have application in developing an entrepreneurial society, especially in local areas.

Severe Acute Respiratory Syndrome (SARS) Epidemic

59. The APEC region has endured the impact of the Severe Acute Respiratory Syndrome (SARS) epidemic. This disease has not only taken a number of lives, but has also resulted in economic volatility in many member economies. APEC SMEs have been affected by weakened business confidence, reduced tourism and travel, and increased transaction costs. Ministers welcomed the APEC Action Plan on SARS and the outcomes of the APEC Health Ministers’ Meeting on SARS held in Bangkok on 28 June 2003. Ministers undertook to do their utmost to revitalize their economies, in particular to help SMEs and micro-enterprises, overcome the difficulties arising from the outbreak of SARS.