The Enhancement of Community Enterprises in Thailand: Case Study of Ban Nongwha Mushroom Community Enterprise

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1 The Enhancement of Community Enterprises in Thailand: Case Study of Ban Nongwha Mushroom Community Enterprise Piyaphan Changwatchai, Kasetsart University, Thailand. Sumalee Santipolvut, Kasetsart University, Thailand. Abstract The roles of community enterprises have been increasing for sustainable development of Thai economy, especially for rural sector. The strong community enterprise can strengthen the economy. In order to enhance the performance of potential community enterprises, potential assessment and tailor-made plan for the community enterprises are necessary. This research aims to assess the potential of Ban Nongwha Mushroom Community Enterprise, to suggest the elaborated plan for enhancing the community enterprise s potential, and to implement pilot projects by using primary data and the Diamond Model. According to the Diamond Model, the results show that the scores for factor conditions and demand conditions are moderately high, while those of the related and supporting industries aspect and the firm strategy, structure and rivalry aspect are moderate and moderately low, respectively. As a result, an overall potential level of this community enterprise is moderate. To develop this community enterprise, the fiveyear plan consisting of ten projects is suggested. Two pilot projects from this plan are implemented: feasibility analysis of substitute material and seminar on straw mushroom farming. The feasibility analysis shows that this community enterprise should use lost-wax cotton when main material, tapioca fiber, is not available. Key words: Community Enterprise, Diamond Model, Sustainable Development JEL Classification: M 2, O 1 1

2 1. Introduction The roles of community enterprises have been increasing for sustainable development of Thai economy, especially for rural sector. One Tambon One Product (OTOP) is local entrepreneurship stimulus program established since 2001 in order to support community enterprises by promoting unique locally made product of each tambon in Thailand. The strong community enterprise can strengthen the economy. In order to enhance the performance of potential community enterprises, potential assessment and tailor-made plan for the community enterprises are necessary. As a result, Department of Agricultural Extension, Ministry of Agriculture and Cooperatives of Thailand have supported food and beverage OTOP community enterprises in all 77 provinces of Thailand. Six outstanding OTOP community enterprises are selected as pilot community enterprises. Ban Nongwha Mushroom Community Enterprise is one pilot community enterprise whose main product is fresh straw mushroom. This research consists of three objectives: 1) to assess the potential of Ban Nongwha Mushroom Community Enterprise, 2) to suggest the elaborated plan for enhancing the community enterprise s potential, and 3) to implement the pilot projects. 2. Literature Review The Diamond Model (Porter, 1990) is an economic theory which is an important tool for analyzing the competitiveness of nations. Currently, it is used for analyzing the competitiveness of industries and business enterprises. According to Diamond Model, four aspects of determinants of competitiveness must be considered. These four aspects are 1) factor conditions, 2) demand conditions, 3) firm strategy, structure and rivalry, and 4) related and supporting industries. All these four aspects are related to one another. SWOT analysis and TOWS Matrix (Piercy and Giles, 1989) are tools for evaluating the strengths, weaknesses, opportunities, and threats of the business. When each business enterprise awares of its own situation, firm will be able to develop strategic plan or making any important decisions. Santipolvut and Kanchana (2012) assessed the potential of 141 community enterprises from 69 provinces in Thailand based on the Diamond Model in order to develop potential community enterprises to SMES. It is found that the potential level of most selected community enterprises is medium and there are three development areas: production, marketing, and management. Santipolvut (2015) is action research using the Diamond Model, SWOT analysis and TOWS Matrix to determine the development plans for targeted community enterprises in the five Southern provinces of Thailand. It is found that the revenues of community enterprises initiating their development plans have increased. 3. Methodology Data used in this research are primary data collected from Ban Nongwha Mushroom Community Enterprise by in-depth interview, questionnaires designed by Santipolvut (2011), 2

3 and place visits. To assess the potential of Ban Nongwha Mushroom Community Enterprise, the Composite Index is calculated based on Porter's Diamond Model as a proxy of potential of community enterprise. The calculation of this Composite Index follows Santipolvut (2011) which consists of following steps: 1) Determine the indicators for each of four potential aspects which are factor conditions; demand conditions; firm strategy, structure and rivalry; and related and supporting industries. The indicators for each aspect can be shown in Table 1. Then, the score is assigned to each indicator. The total score of overall potential level and each potential aspect can be shown in Table 2. 2) Calculate the simple index of each potential aspect using following equation: D i j 1 m j 1 m X ij MaxX ij where D i is the simple index of potential aspect i. X ij is the indicator j for potential aspect i where i = 1,, 4; 1 for factor conditions, 2 for demand conditions, 3 for firm strategy, structure and rivalry, and 4 for related and supporting industries, respectively. MaxX ij the highest score of the indicators for potential aspect i. 3) Calculate the composite index (POTL) which indicates the potential of the community enterprise. The composite index is an equally weighted average of simple indices of four aspects as following equation: POTL 4 1 i 4 D i Where POTL is composite index of overall potential of the community enterprise and D i is the simple index of potential aspect i. The potential of this community enterprise will be classified into one of five levels based on this composite index: 0-20% for low level, 20-40% for moderately low level, 40-60% for moderate level, 60-80% for moderately high level, and more than 80% for high level. 3

4 Table 1: Indicators of Each Aspect for Assessing the Potential of Ban Nongwha Mushroom Community Enterprise Factor Conditions Demand Conditions Firm Strategy, Related and Supporting Structure and Rivalry Industries increase in members sales trends assistance from building upon local employment trends sales proportion in knowledge worker proportion in various levels product prices received production trends of overall sale promotion strategy raw material supply customers sales distribution production technology trends of existing source customers application of machinery in production production process improvement computer and the internet utilization application of computer in management 0. accounting system 1. investment for environment 2. knowledge management Source: Santipolvut (2011) trends of new customers customer database management customer support from local district organizations support from district organizations support from provincial organizations assistance to the community channel product development product quality control product certification product contest award Table 2: Total Score of Each Aspect for Assessing the Potential of Ban Nongwha Mushroom Community Enterprise Potential Aspect Score Factor Conditions 54 Demand Conditions 16 Firm Strategy, Structure and Rivalry 26 Related and Supporting Industries 32 Total Score 128 Source: Santipolvut (2011) To suggest the elaborated plan for enhancing the community enterprise s potential; SWOT analysis is adopted in order to analyze the internal and external environment of the community enterprise. Then, TOWS Matrix is used in order to get the five-year plan for enhancing the potential of Ban Nongwha Mushroom Community Enterprise. As for the pilot project implementation, the projects indicated in the first year of plan will be selected as pilot projects. Then, each of pilot projects will be implemented, monitored, and evaluated. 4. Results and Discussion For the results of potential assessment (Table 3), the overall potential of Ban Nongwha Mushroom Community Enterprise is moderate, i.e. its score is For each aspect, the community enterprise has moderately high potential for factor conditions and demand conditions, whose scores are and 68.92, respectively. The potential level of firm strategy, structure and rivalry is moderate, score of and that of related and supporting industries is moderately low, score of 25. 4

5 Table 3: Potential Assessment of Ban Nongwha Mushroom Community Enterprise Aspect Max Score Score % Potential Level 1) Factor Conditions Moderately High 2) Demand Conditions Moderately High 3) Firm Strategy, Structure and Rivalry Moderate 4) Related and Supporting Industries Moderately Low Composite Index (Potential Level: POTL) Moderate Source: Authors' Calculation For factor conditions, the number of members and employment tend to be constant and all workers employed are locals. There are production process improvement and many sources of production technology. Computer and internet are used for business management and the group has a fair accounting system. Most materials can be supplied by suppliers in the province. However, the main problem is the fact that main material, tapioca fiber, is not enough during raining season. Most farmers cannot grow straw mushroom for a few months. For demand conditions, sales volume has been increasing despite of constant number of customers. All main customers are existing customers which are retailers from other provinces and these customers buy all products of the community enterprise. Furthermore, the community enterprise has customer database. For firm strategy, structure and rivalry aspect, the community enterprise has developed new products, processed mushroom products, and controlled the quality of mushroom. Even though it receives some awards for its mushroom, it obtains only one certificate, which is GAP. The price received for the product is lower than its expectation. Furthermore, there is no sale promotion strategy and the group has only one distribution channel, selling to retailer at the location of the community enterprise. For related and supporting industries aspect, there is little assistance from local district authorities but there are a lot of assistance from district and provincial authorities. However, the community enterprise provides a lot of assistance to its community. The details of indicators in each aspect can be concluded in Figure 1. Moreover, each indicator in Figure 1 is assigned into one of four categories of SWOT analysis. The parenthesis in front of each indicator shows the category of that indicator: S for Strength, W for Weakness, O for Opportunity, and T for Threat. Furthermore, one more weakness and threat are added to SWOT analysis, which are W6: no packing and T3: seasonal lack of main material. 5

6 Figure 1: Diamond Model for Ban Nongwha Mushroom Community Enterprise Firm Strategy, Structure and Rivalry (S8) building upon local knowledge (T1) low product prices received (W3) no sale promotion strategy (W4) only one distribution channel (S9) product development (S10) product quality control (W5) very few product certifications (S10) many product contest awards Factor Conditions (S1) local worker in manufacturing (W1) constant members (W2) constant employment trends (S2) local raw material supply (S3) many production technology sources (S4) application of machinery in production (S4) production process improvement (S5) computer and internet utilization (S5) application of computer in business management (S6) good accounting system (S7) investment for environment (S8) community enterprise knowledge management Demand Conditions (O1) increase in sales trends (O2) All sales proportion in other provinces (O3) constant numbers of overall customers (O3) constant numbers of existing customers (S8) customer database management Related and Supporting Industries (T2) no assistance from customer (T2) very little support from local district organization (O4) good support from district and provincial organizations (S7) good assistance to the community Source: Authors' Analysis *( ) indicate the category of each indicator in SWOT Analysis 6

7 External Factors Analysis Summary (EFAS) Proceedings of the Third Asia-Pacific Conference on Global Business, Economics, Finance and Table 4: TOWS Matrix for Ban Nongwha Mushroom Community Enterprise Internal Factor Analysis Summary (IFAS) Strengths Weaknesses S1 - S10 W1 - W6 Opportunities O1 - O4 Threats T1 - T3 Source: Authors' Analysis SO Strategy Production Process and Material Supply Development Strategy (S1,S2,S3,S4,S9,S10 +O1,O2,O3,O4) Strengthening Community Strategy (S5,S6,S7,S8,S10+O1,O3,O4) T Strategy Production Process and Material Supply Development Strategy 1,S2,S3,S4,S9,S10+T3( *( ) refers to the matching of internal factors and external factors. WO Strategy Product and Marketing Development Strategy (W3,W4,W5,W6+O1,O2,O3,O4) WT Strategy According to TOWS Matrix (Table 4), the five-year plan with three strategies is suggested to Ban Nongwha Mushroom Community Enterprise in order to enhance its potential. First, production process and material supply development strategy, which is SO strategy and ST strategy, consists of one program (production process and material supply development) with five projects (Table 5). Second, strengthening community strategy, which is SO strategy, consists of one program (sustainable development) with two projects (Table 5). Third, product and marketing development strategy, which is WT strategy, consists of one program (marketing and public relation) with three projects (Table 5). Table 5 shows all ten projects and their implementation periods recommended to Ban Nongwha Mushroom Community Enterprise. - 7

8 Table 5: The Five-Year Plan for Ban Nongwha Mushroom Community Enterprise Year Strategy Program Project 1. Production Process and Material Supply Development Strategy 1. Production Process and Material Supply Development 1. Feasibility analysis of substitute material 2. Seminar on straw mushroom farming 1 st 2 nd 3 rd 4 th 5 th 2. Strengthening Community Strategy 3. Product and Marketing Development Strategy 2. Sustainable Development 3. Marketing and Public Relation 3. Study of suitable environment for and feasibility analysis of mushroom closed- house 4. Lost-wax cotton formula development 5. Post-harvest technology development 1. Establishment of learning center for agri-tourism 2. Establishment of store 1. Packing development 2. Distribution channel expansion and public relation 3. Processed straw mushroom development for export Source: Authors' Analysis Among these ten projects, two projects are selected as pilot project for implementation: Feasibility Analysis of Substitute Material and Seminar on Straw Mushroom Farming. For Feasibility Analysis of Substitute Material project, lost-wax cotton is used as substitute material of tapioca fiber to grow straw mushroom in two plant nurseries of two different farmers. The output and revenue data as well as any problem during growing the mushroom are observed and collected. The observation finds that the quality of product is similar to the case of using tapioca fiber, the average output level of these two houses is kilograms per crop and the average revenue is about US$ per crop, which is about the same as using tapioca fiber. The total cost per crop of each case is US$ for tapioca fiber case, US$ 355 for purchased lost-wax cotton case, and US$ for case of lost-wax made by the group. In order to analyze the feasibility of usage of lost-wax cotton as substitute material, it is necessary to compare the profit for the whole year, not just one single crop. As a result, the profits of four scenarios are considered. Due to the fact that the farmer can grow straw mushroom 8 crops a year per plant nursery, the first scenario is the case that tapioca fiber is available for the whole year. In fact, tapioca fiber is not enough during raining season. 8

9 Without substitute material, farmers will be able to grow straw mushroom only 6 crops a year. As a result, the second scenario is the case that farmers do not use any substitute material and grow straw mushroom only 6 crop a year per plant nursery. For other two scenarios, lost-wax cotton is used when tapioca is not available. As a result, farmers can grow straw mushroom 8 crops a year by using tapioca fiber for 6 crops and lost-wax cotton for 2 crops. The third scenario is that case that lost-wax is purchased from suppliers and the forth scenario is the case that lost-wax is produced by Ban Nongwha Mushroom Community Enterprise. Table 6: Revenue, Cost, and Profit of Four Scenarios Unit: US$ per year per plant nursery* Scenario Revenue Cost Profit Tapioca fiber is available for the whole year 3, , , (tapioca fiber for 8 crops) Seasonal lack of tapioca fiber and no substitute 2, , , material (tapioca fiber for 6 crops) Seasonal lack of tapioca fiber with purchase of lostwax 3, , , cotton as substitute (tapioca fiber for 6 crops and lost-wax cotton for 2 crops) Seasonal lack of tapioca fiber with production of lostwax 3, , , cotton as substitute (tapioca fiber for 6 crops and lost-wax cotton for 2 crops) Source: Authors' calculation * Exchange rate is 32 Thai baht per US dollar. Table 6 summarizes the profit of each scenario. The results show that the best scenario is the first one whose profit is US$1,910 per year per plant nursery. Namely, tapioca fiber is better than lost-wax cotton because the cost per crop is lower. Unfortunately, tapioca fiber is not enough during raining season. Without material substitution, the profit is only US$ 1, per year per plant nursery. The profits of the third and the forth scenario are US$ 1, (11.52% higher than the second scenario) and US$ 1, (26.78% higher than the second scenario) per year per plant nursery, respectively. As a result, lost-wax should be used only when tapioca fiber is not available and Ban Nongwha Mushroom Community Enterprise should develop lost-wax cotton formula by itself in order to save cost of production. Develop the suitable formula of lost-wax cotton is one of projects in the plan. As for the other project, Seminar on Straw Mushroom Farming is held for the members of Ban Nongwha Mushroom Community Enterprise and covers the topic of how to grow straw mushroom and how to solve the problem of growing mushroom. The participating members have a better understanding of mushroom growing and problem solving in the farm. 5. Conclusions and Recommendations According to the Diamond Model, the results show that an overall potential level of this community enterprise is moderate. The scores for factor conditions and demand conditions are 9

10 moderately high, while those of the related and supporting industries aspect and the firm strategy, structure and rivalry are moderate and moderately low, respectively. The main problem of Ban Nongwha Mushroom Community Enterprise is the lack of tapioca fiber, which is the main material for growing straw mushroom, during raining season. To develop this community enterprise, the five-year plan consisting of ten projects is recommended. Two pilot projects from this plan are implemented, monitored, and evaluated. One project is feasibility analysis of substitute material and the other one is seminar on straw mushroom farming. The feasibility analysis shows that this community enterprise should use lost-wax cotton when main material, tapioca fiber, is not available. Furthermore, other 8 projects must be implemented as plan in order to enhance Ban Nongwha Mushroom Community Enterprise to be one of strong community enterprise in Thailand. For policy recommendation, Thai government should support the potential assessment of community enterprises as well as a five-year plan formulation for enhancing the potential and performance of community enterprise. This will strengthen community empowerment as the grassroots of sustainable development for Thai economy as a whole. References Hashim, M. K. (2000) A Propose Strategic Framework for SMEs Success. Malaysian Management Review, 35(2), p Piercy, N., & GileS, W. (1989) Making SWOT Analysis Work. Marketing Intelligence & Planning, 7(5/6), p Porter, M. E. (1990) The Competitive Advantage of Nations. New York: Free Press Inc. Santipolvut, S. & Sripruetkiat, K. (2012) Development of Community Enterprise in Thailand. Shanghai International Conference on Social Science (SICSS 2012), Conference Paper. Santipolvut, S. (2015) Developing a Sustainable Community via Community Enterprise: Approaches and Case Studies in Thailand. Asian Social Science, 11(4), p Santipolvut, S. et al. (2011). An Assessment OTOP Potential towards SMEs. The Center for Applied Economics, Faculty of Economics, Kasetsart University, Bangkok, Thailand, unpublished research. 10

Development Community Enterprise of Local Handicraft Groups in Angthong Province, Thailand.

Rev. Integr. Bus. Econ. Res. Vol 4(NRRU) 53 Development Community Enterprise of Local Handicraft Groups in Angthong Province, Thailand. Panitsupa Thampramuan Thepsatri Rajabhat University, Lopburi, Thailand.