Factors Affecting Entry into Supply Chain Trade: An Analysis of Firms in Southeast Asia

Abstract

AbstractThis article undertakes a comparative, firm‐level analysis of joining supply chain trade in five Southeast Asian economies to improve our understanding of fragmentation of manufacturing across borders. The findings suggests that firm size (reflecting economies of scale to overcome entry costs) matters for joining supply chain trade with large firms playing the dominant role in Southeast Asian economies. Meanwhile, small and medium‐sized enterprises (SMEs) make a small contribution to supply chain trade relatively to the sectors employment contribution. However, firm size is not the whole story. Efficiency—particularly investment in building technological capabilities and skills—and access to commercial bank credit also influence joining supply chain trade. The article suggests that governments can facilitate SMEs joining supply chain trade through a market‐oriented strategy, modern physical infrastructure, streamlined regulations and efficient business support services.