Just all talk on SME growth (part 2)

Philippine small and medium-sized enterprises (SMEs) need better linkages to foreign markets, exporters and middlemen to grow their business in the global environment, but they must first be ready to face the tougher challenges posed by more formidable competitors.

The government has been talking about export support for our SMEs primarily through the Philippine Export Development Plan (PEDP), which purportedly contains the country’s export strategies and programs to boost export performance.

Just like the government’s pledge to help boost SME competitiveness, all of these declarations about giving support to small and medium-sized Filipino exporters continue to be talk.

For years, the Department of Trade and Industry’s Export Development Council has been holding consultations. The same problems invariably come up, that it sounds like a broken record. I’m sure our exporters would want to raise their hands up and give up attending consultations.

Same concerns

Aside from having bigger budgetary allocations for international trade shows, exporters decry the lack of awareness and knowledge among our government officials on export procedures, specifically on clearances. Not knowing these things leads to delays.

It’s also pathetic that the government allocates only about P100-to P200-million a year to international trade linkages, including participation in key trade fairs, when other countries in the region spend billions. We rarely stand out in these events when put side by side other ASEAN countries.

Exporters continue to ask for a listing of reliable local suppliers who could supply them with materials that could add more value to their products, and ultimately have a better chance of being bought in the global market.

They also ask for more government support in innovation and product design and packaging. Other recurring concerns include the high cost of electricity and inter-island shipping that ultimately weigh down on the export sector’s competitiveness.

Prioritize and focus

Perhaps the government should look at new export sectors that could provide the best bang for the money. At Philippine booths in international trade shows, I still see Philippine-made footwear being displayed that receives little attention from potential buyers and even the locals.

In the same way, we should remove from the PDEP priorities the promotion of electronics. While this indeed accounts for a big chunk of the country’s export earnings, electronics export has a lower added value for the economy since this comes from those electronic chip manufacturing facilities in export processing zones where almost all parts are imported and are assembled here before being exported.

We need to decide, for example, if we’re going to bet our all for the Philippine coconut or mango or whatever, and pour the technical and financial support to come up with an international product that can withstand potential competitors within a time frame of five years, for example.

We have to innovate on products the market will want and need, and start research and development so that when we ship out, they become instant hits.

Coconut water fad

Case in point is the story of Vita Coco, the coconut drink that is also sourced from the Philippines. Good packaging, right and relevant timing, and sustainable branding has made it into a multibillion-dollar company.

Well, it also helped immensely that Madonna liked the product so much that she invested in the company (founded by two Jews, Michael Kirban and Ira Liran) along with Demi Moore, McConaughey and Rihanna.

We could tap the help of our prominent CEOs and ask them to be a godfather to a promising SME that would be highly recommended by the DTI (and therefore, can be given the necessary technical and financial support by the bureaucracy).

Japanese experience

One article I chanced on elaborated in relative detail about how Japan developed its SMEs to become significant contributors to its national economy.

SMEs developed as exporters of traditional light industries in the 1910s and then developed mainly as subcontractors of modern machinery industries after the 1930s, and zaibatsus or large enterprises ready to take on prominence in the global marketplace in the 1960s.

The article points out that the main driver of SME development is “not external assistance, but internal learning and entrepreneurial activities in a competitive environment.”

Secondly, the article points out that Japan’s SME development process took an inclusive pathway. “Collective action by small firms in rural and urban communities, clusters, and cooperatives helped SMEs overcome their size disadvantage.”

Here, Japan was able to make use of the one village, one product concept movement whereby a joint production and marketing activity among villagers for selected local specialty products was initiated.

The same concept was also successfully adopted by Thailand. So what does this say about the Philippines’ version?

Third, and perhaps more importantly, Japan had a full range of SME policies at the central and local government levels, which were all intertwined and supportive of each other.

This included initiatives such as financing, preferential taxation, subcontractor protection to regulate unfair transactional practices, management support services and reconstruction support services – all in aid of leveling the playing field for SMEs.

To revitalize SMEs, there were policies that dealt with technology development support services, human resource development support services, overseas business development support services, new business (products, markets) support services, and revitalization of local commercial areas.

They managed to think of everything and put them all together in one interlocking package encompassing local and national barriers. We need this!

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