Provincial Patronage Networks & Small Businesses in the Greater Mekong Sub-Region (GMS): Implications for the ASEAN Economic Community (AEC) 2015

: In East Asian cultures such as Thailand, existing patronage in local political and administrative structures can limit the ability of the state to affect its policies. Consequently, this research examines the extent to which these “guanxi” networks affect provincial small businesses, which lack the resources to persuade local provincial patronage providers to advantage them. This has implications for the ASEAN Economic Community, when cross-border economic activity is expected to increase, especially in the Greater Mekong Sub-region (GMS). Thailand is chosen for this study because of its long history of strong power patronage systems at the provincial level and for its regional economic prominence and rich cross-border trade activities with neighboring countries such as Laos, Myanmar, Cambodia and Malaysia in the GMS. Findings from interview-based data collected from 178 small firm respondents from 31 provinces suggest that “friends and family guanxi” networks matter most for provincial small businesses. While there is an ongoing relationship between political officers and top managers of buyer (not supplier) firms, these are likely to be large firms, not small firms. Consequently, it is likely that small provincial firms, whether Thai or from neighboring countries, will not need to foster connections with local politicians and government officials.

people are also likely to set up new businesses in neighboring markets and in border provinces. SMEs are not only a major driver of national economic development at the provincial level but, with ASEAN integration, they will also serve to stimulate regional economic activity. Most studies on economic integration focus on powerful MNCs and large firms, which enter the host country by setting up branches in the metropolitan areas and setting up production facilities in industrial zones. Studies also look at how large foreign corporations manage guanxi or connections in their host countries. However, few studies examine guanxi factors that affect small businesses that operate in the border regions, especially in the provincial areas. Consequently, this paper examines the extent to which guanxi networks affect provincial small businesses which, unlike large MNCs, lack the resources to persuade local provincial patronage to their advantage. More importantly, this study examines the kinds of network dynamics orguanxi that come into play at the provincial business environment and what types matter.

The Greater Mekong Sub-region (GMS) and ASEAN Economic Integration:
The ASEAN Charter moves ASEAN towards becoming a region where goods, services and skilled workers in some categories, as well as investments initiatives, can freely move across internal borders. For the nations of ASEAN, this is a pressing issue because the member countries are aiming towards regional economic integration, embodied by the AEC. The goals are to bring about (a) a single market and production base, (b) a highly competitive economic region, (c) a region of equitable economic development and (d) a region fully integrated into the global economy. Small businesses are likely to be among the beneficiaries of these changes. Developments have also been taking place at the sub-regional level in preparation for the AEC. For example, the intensification of the GMS Corridor project required improvement to the transportation infrastructure and the retail environment. When benefits of these plans became evident, there was an increase in commercial activity (Guina, 2008). The resulting increase in riverine and border trade also further intensified the increase in activity (Arunmas, 2003). Large firms from China have also been making investments in Thailand as a result, e.g. a new hotel scheme announced in 2007 which would offer accommodation for Chinese travelers and merchants, among others (no doubt including those visiting nearby semi-legal cross-border casinos) (Bangkok Post, 2003). Thai investors also sought to establish new ventures there alongside Chinese investment projects (Bunyamanee, 2003).
With the increase in foreign competition, the government also appreciated the need to strengthen the domestic economy, so as to reduce the vulnerability to external shocks (Choi, 2005). Most importantly, the provinces formed the foundation of electoral votes for the incumbent TRT party. Thus, the government decided to make great efforts to strengthen the local economies, not only in border provinces but in all 76 provinces of the country. Efforts were made to develop income-earning opportunities in every part of the country, e.g. the One Tambon One Product (OTOP) and village fund schemes were attempts to stimulate the creation of SMEs in the provinces, in order to promote local economies. In fact, Thailand's history of inward and outward migration has been taking place on a large scale over the centuries -even prior to the European colonization period in neighboring Laos, Cambodia and Myanmar, when Thailand (then known as Siam) had no need for mapping borders (Winichakul, 1994). For example in the Northern and North-Eastern provinces of Thailand, migration movements have contributed to a multi-ethnic population, in which the majority of Thai people are related to the Thai-Lao people of the northeastern Isan region.
While it could be argued that the influx of foreign businessmen from neighboring countries may adversely affect Thai small businesses, they can also help to promote the Thai economy. Historical migration movements from neighboring countries also have long term effects in helping to promote international trade for present day Thailand. For example, in the Northern part of Thailand, there are Shans and other migrants from Myanmar who fled the armed struggles they have undertaken in the sake of autonomy and freedom from oppression, as well as the Kuomintang faction who were awarded Thai citizenship status in return for their armed support against then warlord Khun Sa and other services to the state. Interestingly, members of such factions and their descendants have established themselves as leaders among the business community in Thailand, and the subsequent links that they established with Taiwan have been beneficial in providing an export market for provincial Thai tea and other Northern Thai products (Walsh & Techavimol, 2007). With the AEC, cross-border economic activity can be expected to flourish rapidly at all levels, including small firms and grassroots economic activities.
Provincial Power Patronage in Thailand: Throughout recorded Thailand history, the executive has found it difficult to ensure that local officials and agents, remote from direct supervision, obey orders and do not pursue their own interests using the badge of the state as legitimacy. In modern Thailand, this is manifested by the behavior of police and military forces who are removed from the public spotlight and who frequently choose to organize their duties such that they enrich themselves rather than scrupulously and even-handedly pursue state policies. Prior to 2001, Thai politics was dominated by vote-buying and local godfathers (chaopor) who would maintain patronage networks that effectively were able to distribute resources to network members, including official positions. The result was a series of coalition governments, comprised of a variety of ideology-free political parties whose members would eagerly change from one to another in the hope of short-term financial gain. The 1997 Constitution aimed to put a stop to this by increasing the power of elected politicians, especially an elected Prime Minister, to enact the policies on which they were elected (Chaisang, 2009: 33-41). The Constitution was aimed at promoting executive stability, accountability and participation (Dressel, 2009). Together with policies crafted from careful consultation with the public and the creation of an enormously broad coalition of interests. In addition, public sector institutions such as the military and the civil service are, for the size of the country, very large and have often adopted a paternalistic attitude towards the people (e.g. Chaloemtiarana, 2007: 133-9).
For Thailand, economic policy to enhance provincial business environment took place in coordination with large firms who could promote overall development. However, Thailand's method of governance is controversial in that, given the nature of business-government relationships; there is a lack of transparency and an apparent bias towards large, domestic and international concerns to the detriment of smaller operators. This has been evident through the expansion of Tesco-Lotus, for example, which has attracted many protests in locations fearing unfair or unbeatable competition and various charges of improper zoning decisions (e.g. Kanchoochat, 2008). The development model as a whole indicates one form of contradiction within the early TRT party alliance: there appeared to be a contradiction between supporting the rural poor and supporting the expansion of international retail, which threatened the livelihoods of many local people -this contradiction was countered by arguments that the retail chains in fact increased overall employment and customer utility and welfare. The general thickening and broadening of consumer markets has then brought about an expansion of large retailers, such as Tesco-Lotus (Jitpleecheep, 2005), as well as well-known retail outlets seeking early mover advantages (Jitpleecheep, 2006).

Significance of Guanxi at the provincial level:
While the overall economic policy was applicable to the entire Kingdom, it is clear that at the local level there would need to be a mix of policies and resources reflecting the specific local geographic, demographic and economic factors. The outstanding feature of provincial business operation in Thailand, ubiquitous in Asian culture, is the strong influence of connections or guanxi. Not surprisingly, enacting policies at the provincial or tambon level, even with the support of an overwhelming electoral mandate, was hampered by additional levels of existing patronage in local political and administrative structures, together with the limits to the ability of the state to affect its policies. Various interests contended to obtain power within an overall developmental paradigm in conditions which may be described as 'semi-democratic' (Samudavanija & Chotiya, 1998). The means of combating this system were to inject ideology into political debates and the continual improvement of education but these were long-term goals. In the short-term, it was necessary to forge alliances with some local power-brokers whose motivations were personal aggrandizement rather than political or economic goals.

Literature Review
This section presents a brief consideration of the wider concept of culture in a social context and its relevance to SME business operation in an Asian setting, especially provincial small businesses. Smallbone et al. (1993) found that manufacturing SMEs rural firms were much more strongly tied to local rural conditions. The overwhelming majority of SMEs are manufacturing, not services, hence the importance of having a connections is magnified in provincial areas. Carter, Williams and Reynolds (1997) examined small retail firms in an approach based on social psychology, which argued that strategic choice is shaped 290 by the experiences to which individuals have been subjected. Hence, operating a business in provincial Thailand would be shaped by the business owner's cultural experiences with local connections or guanxi.
Given the Thai-Asian political-cultural setting, the following discussion addresses the impact of business connections or guanxi both in the wider sense for provincial small firms, including small family firms and small community enterprises.
Culture and Business Operation at the Social and Personal Levels: Elements of culture are ever-present and are likely to dominate in organizations. Findings from past research suggest that that economic activity is facilitated by the cultural milieu in which it is embedded. Research findings also suggest that networks impact business success, where network or guanxi brings about reciprocity and trust which in turn strongly influences marketplace behavior, knowledge resources as well as performance (e.g. Miller, 1991;Besser, 1998Besser, , 1999. Deshpande, Farley & Webster (1993) described cultural "types" as dominant" or "modal" (but not mutually exclusive), and explored their effects on business practice by linking cultural "types" to business performance of various levels. For example, organizations dominated by values of a clan (cohesiveness, participation and teamwork) and hierarchy (order, rules and regulations) would tend towards rigidity and order (Deshpande, Farley & Webster, 1993;Quinn & Cameron, 1983).
At the societal level, Hofstede's (1980Hofstede's ( , 1994 work comparing 40 countries identified societal dimensions that explained country-to-country differences, namely power distance, uncertainty avoidance, individualism and collectivism, masculinity versus femininity, and long-term versus short-term orientation. At the individual level, Nisbett (2003) challenged the cognitive assumption of universality or invariance across cultures. While cognitive scientists believe that a logically true statement should hold true across all cultures, since all human groups perceive and reason in the same way, Nisbett (2003: xii-xiv) argued that East Asians (China, Korea and Japan) tend to be broader and contextual, believing that each every day event is related to other event, and hence are highly complex, determined by many factors, and difficult to control.
According to Nisbett (2003), an East Asian person's thinking-attention, perception, reasoning, causal inference and knowledge organization--has to be interpreted based on the underlying context. Early and Ang (2003) also discussed how an individual's cultural intelligence exist at different levels-ordinary cognition (perception, sensation, attention), cognitive processes (representation, abstract reasoning, problem solving, decision making), and etic manifestation (formal, learned, declarative, versus experiential, procedural knowledge). Hence to move forward appropriately, culturally relevant information, both external/societal and internal/individual, needs to be incorporated The Influence of Social Culture on Small Firms: Economic activities occur within a social context (Granovetter, 1985) and, therefore, a firm's economic activity is affected by the cultural context in which it is embedded. Given that SMEs in Thailand are made up mostly of family enterprises, cooperatives and community firms as well as private firms (based on the thaitambon.com listings), the culture that exists within the context of family and community inevitably exerts an impact on the firm's strategy. In family firms, the cultural milieu of the owning family underlies the business culture of the firm (Astrachan, 1988;Daily & Dollinger, 1991;Dyer, 1986Dyer, , 1988Gomez-Mejia et al., 2001;Hall, Melin & Nordqvist, 2001;Schein, 1995). The family firm's organizational culture is not only an important strategic resource (Zahra, Hayton & Salvato, 2003) but also positively has an impact on performance. For example, family heritage and tradition have been found significantly to benefit the economic value of the family firm (Narva, 2001), not only for the owning family but also for the environment and community in which it operates (Kleberg, 2001). The business and its culture are formed simultaneously or subsequently and are affected by the family and its culture (Stafford et al., 1999). Similar to family businesses, which have overriding family culture and values, cooperatives also have overriding cooperative culture and consensus. In the provincial context, it was found that members' awareness of cooperative philosophy is one of the determinants of cooperative success (Machete, 1990). In the context of Thailand, where Buddhism is the predominant religion, the basic tenets of Buddhist economics exert a strong influence on decision making and the way cooperatives and community firms are run.
Family and Friends: Family firms can access and draw on a complex web of other families and associates through the family, e.g. network ties from direct relationships within the immediate family, the extended family and in-laws (Steier, 2007). Studies also found that labor is a resource that is made readily available through family ties, with some studies finding that family members are more productive than non-family members (Rosenblatt et al., 1985;Kirchhoff & Kirchhoff, 1987), while others (e.g. Heck & Walker, 1993) found that family members and unrelated workers are more productive than related workers (i.e. cousins and in-laws). Adopting the "Middle Path" approach to preserve harmony in one's own community is also practiced through maintaining good guanxi (Clark &Ip, 1999). The development of cooperatives and community firms in provincial Thailand also depends on trust and commitment to the group in line with the Buddhist concept of "good friend" (Prayukvong, 2005). In the rural context, Miller (1991) found that rural community norms of reciprocity, networks and trust are important in predicting rural community marketplace behavior. Besser (1998Besser ( , 1999 found that rural business success is indirectly related to the presence of community norms of collective action and reciprocity. Among agricultural cooperatives located in less developed areas, it was found that trust among members is an important of group cohesion and determines the strength of the cooperative, i.e. how much a member would remain in a group (co-op) and be committed to it (Hansen, Morrow & Batista, 2002). Hence, members' awareness of cooperative philosophy is one of the determinants of cooperative success (Machete, 1990). For example, the success of the Thailand's Ta Mod rubber farmers group in Patthalung province is attributable to the "temple terrace council" made up of leaders, Buddhist monks and eminent Muslims, who worked to develop the social capital of the community as a group of internal "good friends" (Prayukvong, 2005). Thus: Hypothesis 1: Family and friends are most important for provincial small businesses in Thailand.

Connections with Other Small Businesses:
The combination of acquaintanceship, trust and norms of reciprocity, termed "social capital," can be considered as a community resource used in realizing the common good, according to Putnam (1993), who found that the differing levels of economic development in Italy are determined by community norms of reciprocity, associational involvement, networks and trust.
For example, Granovetter's (1985) study on the network of New York diamond merchants, Portes and Sensenbrenner's (1993) analysis of the Cuban American community and Uzzi's (1996) research on a garment manufacturers' network. Internal and external knowledge sharing between individuals also varies depending on the closeness and interaction frequency in the relationship between the parties involved (Granovetter, 1973;Hansen, 1999;Levin & Cross, 2004). According to Miller and Le Breton-Miller (2003), studies demonstrate that well connected business operators have better access to information exchange, are able to negotiate agreements without having to seek legal recourse and are able to innovate and adapt rapidly to take advantage of changes in the market.
In many developing countries, small firms would also try to collude with other small firms that they trust, helping each other to create a win-win situation, rather than compete with each other, e.g. small firms in Turkey's textile industry (Akgungor, 2006). Hence, in addition to networking with government officials, networking with other businesses is also critical to the survival and success of small firms. Lin and Zhang's (2005) empirical study found that SMEs in Taiwan's publishing industry modify their guanxi to meet the requirements of the changing environment. Lee et al. (2001) study found that the SME credibly commits to staying in the market by forming a strategic alliance with parties who possess relevant strengths, e.g. form a cooperative venture (Singapore's Econ Minimart), incurring high sunk costs to signal the SMEs' commitment to stay in the market (telecommunications in South Korea, Malaysia, Singapore and Thailand).
In the context of a developing country, to be able to engage in such activities requires knowledge of influential connections capable of providing political facilitation and protection, as well as financing.
Consequently, this suggests that: Hypothesis 2: Business connection is important to provincial small businesses in Thailand. Uzzi (1997) found that firms with on-going relationship (i.e. guanxi) with officers of financial institutions are able to obtain more advantageous financing terms. Guanxi or network structures with government officials is instrumental for small firms in developing countries, where it has been found that small businesses also collude with officials as well, not only to keep new competitors out but also to overcome the heavy costs of legal, regulatory and policy (Gordon & Li, 2005).

Provincial Power Patronage Connections:
Given the Thai socio-political culture, having connections in powerful places is of great importance to Thai businesses, as Adorno observed (2005: 23), "The concept of connections, a category of mediation and circulation, never flourished best in the sphere of circulation proper, the market, but in closed and monopolistic hierarchies." However, for provincial areas, small start-ups have no other option but to accommodate and make the most of whatever resources are available, especially in small women-owned firms who have hardly any initial resources. Examples of the specific concerns faced by SMEs include cost disadvantage and an inability to reap the benefits of scale, scope, experience and learning (Nooteboom, 1993). Resource constraints become more acute for firms located in rural areas (Keeble et al., 1992). Miller et al.'s (2003 study also concluded that conducting business in today's rural community environment is wrought with uncertainty, brought about by the hazards of "a triple jeopardy phenomenon," a term coined by Bhat and Fox (1996) which refers to the consequences of having fewer customers who make fewer visits and spend less per visit. Literature highlights the lack of resources with which small provincial firms possess or could learn to use in influencing provincial patronage, hence suggesting that: Hypothesis 3: Political connections do not matter for provincial small businesses in Thailand.

Methodology and Data Collection
Only small provincial firms were used in this study. They came from a total of three sources-the BNI Bangkok membership list (Business Network International www.bni.com) which includes small firms in provinces close to Bangkok; the official SME listing in thaitambon.com and the official listing of handicraft businesses from SACICT (the Support Arts and Crafts International Center of Thailand-www.sacict.net). A total of 178 small firm respondents from 31 provinces of varying levels of economic development were obtained for this study through interview-based field research. The study collected data from provincial small firms across Thailand using a survey questionnaire administered in-person on-site, i.e. questionnaire-assisted personal interviews. It is difficult to check the accuracy and reliability of self-reported data (Becker & Bakal, 1970) and, therefore, the on-site face-to-face meeting helped to minimize errors from self-reporting. Conducting face-to-face interviews also enabled the researchers to probe for further clarification and become immersed in the respondents' world, which aids in the crystallization of epistemological theories.
The research emphasizes the importance of maximizing data validity and accuracy by making trips to the provinces to conduct face-to-face interviews with small business owners on-site where they manufactured and sold their products. However, obtaining reliable responses on interpersonal ties outside the family and friends circle is a challenge, due to the sensitive nature of inquiry on ties with other firms (seen as personal and business secret) and government officials in particular (possibly seen as bribery). Thus, rather than using the name-generator approach, which required respondents to name their contacts, the respondents in this research were not required to name their connections or give the number and influence levels of their connections. The respondents were asked to use their finger to point their level of political connection.
No names or written words were recorded. Peng and Lou (2000) had also intentionally worded their measures as general questions, decomposed into relationships with buyers, suppliers and competitors, as well as relationships with political leaders and officials at various levels. Peng and Lou (2000) asked the respondents to assess their ties with other firms and government officials on a seven-point scale, ranging from very little (1) to very extensive (7).
Consequently, this research used Peng and Lou (2000)'s scale for interpersonal ties (guanxi use), a total of 6 measures. Three are for network linkage with other firms (a, b, c) and three are for network linkage with government officials (d, e, f). The measure for guanxi with family and friends (g) was added by this study as suggested by literature on SMEs, family business, community business and rural business. However, instead of ranging from 1-7, this research asked respondents to use a 1-5 scale, since this simplifies decision-making. The ranking of 1 is for "hardly ever" and the ranking of 5 is for "very often." The question friends." In addition, other standard scales related to supplier and customer were adapted for provincial small firm's context and used to collect data, e.g. customer orientation, differentiation, low cost, pricing and advertising etc. Data was also collected for use as control variables in this research. These were basic questions on age and gender of the owner, size of the business, and age of the business, product type, business type, and firm size, sales to local and sales to distributors.

Findings
Exploratory factor analysis (EFA) with Varimax rotation of all 7 measures for network linkage produced 2 factors with Eigen values above 1 (3.755 and 1.815, explaining 53.64% and 25.93% of variance respectively), with a KMO value of 0.795 and Bartlett's Test of Sphericity with a significance level of 0.000). Peng and Lou's (2000) measures for interpersonal ties with other firms (a-c) loaded together as factor 1, suggesting that these measures are applicable for the context of small provincial firms in Thailand.
In addition, the factor analysis limited to 3 factors separated out the measures as 2 factors in line with Peng and Luo's (2000) study, i.e. political guanxi & business guanxi; but separated out the measure for ties with family and friends (g) as a separate third factor.
Correlation analysis: Correlation analysis of the 7 measures of network linkages found positive correlation between all 6 network linkage measures taken from Peng and Lou (2000). However, significant positive correlation at the 0.01 level was obtained only for guanxi of political leaders, whereby the Pearson correlation was at 0.210** for guanxi between (a) Top managers at buyer firms & (f) Political leaders in various levels of the government; and Pearson correlation at 0.903** for guanxi between (b) State or national level officials & (f) Political leaders in various levels of the government. This suggests that in small provinces, political leaders and managers of buyer firms are in touch with each other, but not at a high level (only 0.210**), compared to the tight relationship, as to be expected, between political leaders and officials (0.903**). However, the measures "Relationship with family relatives and friends" did not have a significant correlation at the 0.01 level with any business and political network linkage measure. This suggests that at the provincial level, political officers are not involved with the operation of small businesses, hence providing support for Hypothesis 3: Political connections do not matter for provincial small businesses in Thailand. The correlation analysis suggests that there is an ongoing relationship between political officers and top managers of buyer (not supplier) firm, who are likely to be large firms, not small provincial firms which have low buying power. Hence Hypothesis 2 (Business connection is important to provincial small businesses in Thailand) is not supported.
Classifying respondents using K-means clustering: Finally, in order to test Hypothesis 1 (Family and friends are most important for provincial small businesses in Thailand.), K-means clustering was conducted on all 178 cases of provincial small businesses. K-means clustering statistics indicate that the clustering with the best goodness-of-fit values (the highest average F Mean Square). It was found that community related networks (non-business guanxi) is seen as of utmost most importance for all provincial small firms (3 rd importance with F Mean Square at 128.85). This finding is supported by past literature which highlighted the importance of rural community norms of reciprocity, networks, and trust are for predicting rural community marketplace behavior (Miller, 1991) and how rural business success is indirectly related to the presence of community norms of collective action and reciprocity (Besser, 1998(Besser, , 1999. Business related guanxi was ranked lower (6 th importance with F Mean Square of only 31.97) by all provincial small firms, thus Hypothesis 2 (Business connection is important to provincial small businesses in Thailand) is again, not supported.

Conclusion, Managerial & Policy Implications
In Asian cultures such as Thailand, provincial business operations tend to experience the strong influence of connections or guanxi, especially in the enactment of economic policies at the provincial levels, whereby existing patronage in local political and administrative structures can limits to the ability of the state to affect its policies. However, this study found that for small firms operating in the provincial business environment, it is friends and family guanxi networks that matters to provincial small businesses, not connections with politicians, government officials or managers of buyer firms. This finding is also supported by literature which stresses their strong local orientation of provincial firms (Dyer, 1988;Reiss, 1982;Davis, 1983;Hoffman, 1981;Post, 1993;Gallo & Sveen, 1991;Astrachan, 1988), describing how day-to-day activities are shaped by the village socio-cultural lifestyle, such as the overriding dynamics of the extended family and collective commitment in the community for provincial small firms in Thailand.
Consequently, the level of economic activity of small provincial firms depends on their connection with family and friends, be it in provinces of the GMS or all provinces after the 2015 AEC development. Small provincial firms, whether owned by Thai or neighboring countries, will not likely need to foster connections with local politicians and government officials. The trade activities will also take place at small scale level between individuals and other small firms or SMEs, not with influential buyer firms who can buy in big lots, which is beyond the ability of small firms. The study found that guanxi with politician/government officials and buyer firm managers do not have much of an impact on small provincial businesses. As a result, with regional integration and freer border movements, it will only involve connections with friends and family for small business owners from neighboring countries -Laos, Myanmar, Cambodia and Malaysia -to come and establish and run a new small business in the host country Thailand, serving to stimulate regional economic activity through Thailand.