Small and Medium Enterprises Go Big-Time in the Philippines
By Carina Roncesvalles
Small and Medium Enterprises (SMEs) are big-time businesses in the Philippines. The SMEs are the backbone of the Philippine economy as these entities make up 99.6% of registered enterprises in the country, employ 69.9% of the labor force, and contribute 32% of the economy.
More than just being business ventures, SMEs take a key role in the Philippines as these establishments assure that quality products and services are within reach of every Filipino nationwide. SMEs also contribute to the equitable distribution of income and the poverty alleviation campaign.
RA 8289 or the Magna Carta for Small Enterprises defines an SME as “any business activity or enterprise engaged in industry, agribusiness and/or services, whether single proprietoship, cooperative, partnership or corporation whose total assets, inclusive of those arising from loans, but exclusive of the land on which the particularl business entity’s office, plant and equipment are situated, must have value falling under the following categories: less than P1,500,001 for micro enterprises; P1,500,001 to P15,000,000 for small enterprises; and P15,000,001 to P60,000,000 for medium enterprises.”
The Philippines’ Department of Trade and Industry (DTI) noted that the SMEs are concentrated in fairly traditional product groups: food industry, organic and marine groups, wearable industry (garments, fine and costume jewelries, footwear and accessories) leathergoods, crafts and home furnishings (gifts, toys and house ware, and handicrafts), furniture and building materials, microelectronics and automotive and machine parts and components.
In a recent statistical report of the Bureau of Small and Medium Enterprise Development (BSMED), the top five locations of SMEs in the Philippines were National Capital Region with 24%, Southern Tagalog with 18%, Central Luzon with 11%, and Central Visayas with 6%, Ilocos region with 6%, and the remaining 35% dispersed in the other regions in the country.
The Philippine government gives high regard to the SME sector. No less than President Gloria Macapagal Arroyo led the nation in uttering words of encouragement for the SME sector.
“It is my hope that through our continuing efforts, our SMEs, which comprise 99.7% of all firms in the country and employ 69% of the labor force, will emerge as a powerful engine for growth. SME development is so important that in my ten-point agenda for the next six years, three million entrrepreneurs shall receive financial and other forms of assistance to enable them to contribute to the generation of six to ten million jobs. This shall give tremendous boost to the diversification of industries and the equitable distribution of wealth,” President Arroyo said in her message included in the National SME Development Plan 2004 – 2010.
The DTI-initiated National SME Development Agenda is the blueprint of the government’s initiatives to assist SMEs nationwide and boost their productivity and competitiveness. It includes interventions in resource development, entrepreneurship training, market development, product development, technology intervention, advocacy for enabling environment and financing to sustain the growth of SMEs in number, productivity and trade output.
The National SME Development Agenda aims to make the SME sector the “driving force in the growth of the Philippine economy” to lead the Philippines to global competitiveness.
The Agenda enumerated the following eight strategies to enhance the operations of the individual SME:
- provide access to comprehensive and focused support for enhancing managerial and technological capabilities, tapping business opportunities, and becoming competitive in the local and international markets;
- provide support for identifying and developing business opportunities through the development of business ideas that promote the expansion and diversification of the country’s industrial structure to assist priority industries;
- strengthen support to the growth industries that are active in the international markets to sustain and enhance their competitiveness and improve their access to the domestic market;
- provide support for industrial linkages of SMEs with leading Philippine industries to strengthen the country’s industrial structure to improve SME operational environment;
- develop SME financing support programs and strengthen the institutions that provide direct and appropriate financial services to SMEs;
- streamline the systems that provide support programs and incentives for SMEs;
- streamline the implementation of SME policies and regulations; and,
- strengthen and build the capabilities of institutions that generate and implement programs for SME development.
In its website, the DTI also provided tips for budding entrepreneurs. It noted that the following factors should be enalyzed to determine the viability of businesses:
- market niche that needs the product or service;
- knowledge of the product or service;
- location of the business;
- value-added of the product or service, in ternms of quality and timeline delivery;
- promotion;
- availability of raw materials;
- after-sales service; and,
- manufacturing capacity.
The DTI further said it is important to prepare a business plan to serve as a guide to the entrepreneur’s journey to a successful business venture.
On financial assistance, the SULONG (SME Unified Lending Opportunities for National Growth) Program is in place. Under this program SMEs can apply for short-term or long-term loans from government financial institutions, namely, Development Bank of the Philippines, Land Bank of the Philippines, National Livelihood Support Fund, Small Business Guarantee and Finance Corp., Philippine Export-Import Credit Agency, and Quedan & Rural Credit Guarantee Corporation.
On the legislative side, several laws have been enacted to promote SMEs and boost their productivity. Foremost is the RA 8289 or the Magna Carta for Small Enterprises that laid the groundwork for the creation of a Small and Medium Enterprise Development (SMED) Council, and the rationalization of government assistance, programs and agencies concerned with the development of SMEs.
“The Council shall be the primary agency responsible for the promotion, growth and development of small and medium enterprises in the country by way of facilitating and closely coordinating national efforts to promote the viability and growth of small and medium enterprises, including assisting relevant agencies in the tapping of local and foreign funds for small and medium enterprise development, as well as promoting the use of existing programs, as well as seeking ways to maximize the use of our labor resources,” Section 6 of RA 8289 stated.
In addition to government support for the SME sector, these enterprises get stronger market exposure through trade fairs, selling missions and matching services in and out of the country led by both the private sector and the government.
In the Philippines, small and medium enterprises have really transformed from start-up businesses to big-time ventures.
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