Just all talk on SME growth (Part 1)

So much talk about firing up our SMEs to become engines of growth, and yet, so little is actually being done. No wonder then that small and medium-sized businesses are not growing as fast as needed despite the fact that they make up 99.6 percent of all registered businesses in the country and employ over 70 percent of the working population.

I have always believed that the best way for a business to grow is when opportunities are seized. However, if the doors for opportunities continue to be hinged on rusted bolts, then it would be difficult to expect our small businesses to grow.

Unfortunately, the two most basic and fundamental platforms for this growth to happen are not given enough support. The first – linkages with larger businesses – is left largely to the noblesse oblige of those companies that are aware or have a high understanding of inclusive growth.

The second – linkages with foreign buyers, exporters and middlemen – is given little support and attention by our government, not just in terms of budgetary support for exposure in foreign trade shows, but through a realistic program that will ensure success.

No compelling reason

On the first issue, large businesses are not compelled to include in their business models the need to work with smaller companies or to encourage local entities to provide services or goods.

Globalization has not helped at all. Local branches of multinational companies, for example, are mandated to secure the services of companies that are approved by global headquarters.

This is evident for advertising services, having forced many of the local home-grown advertising agencies to “partner” or be merged with internationally-linked advertising firms if they want to survive.

The manufacturing sector is too dependent on the importation of most of its parts, and the government has very little plans to give preferential treatment to local companies that want to take on the responsibility of competing against imported parts.

Poor implementation

While there are many laws and government policies that purport to strengthen SMEs, they have remained poorly implemented. The Magna Carta for Small Enterprises mandated the creation of the Small Business Guarantee and Finance Corp. (SBGFC) to help SMEs.

SBGFC was later merged with the Guarantee Fund for Small and Medium Enterprises (GFSME) to become the Small Business Corp. Unfortunately, in its 26 years of operations, SB Corp. has dismally failed to become a major mover for small and medium-sized businesses.

The problem of a weak SME sector is not just financing alone, and our government planners and legislators forget that a cohesive, comprehensive plan akin to what Korea, Thailand or Indonesia have will do more to boost the sector’s value in the economy.

Hodge-podge and forgotten

We have a hodge-podge of laws that are supposed to encourage SME growth, but are in reality no longer relevant or unrealistic. Take the case of EO 176, signed in 2003, that institutionalized the “Isang Bayan, Isang Produkto, Isang Milyong Piso” Program;” which has been conveniently forgotten by most local government units in their annual planning.

The same goes for Barangay Micro Business Enterprises (BMBEs) Act of 2002, which has remained a piece of legislation that is now covered with cobwebs. It would be interesting to know just how much of the micro businesses at the barangay level are availing of this law’s package of incentives.

To a lesser degree, the same goes for the Philippine SME Development Strategy and the Philippine Export Development Plan, which if audited, would also score poorly.

No wonder it’s a tough life for those who run a small or medium-sized business, and if a survey among them were made, it would show they are not making headway in terms of growth, much more of being positive contributors to society.

Stagnant growth

In fact, in a study conducted by the Department of Trade and Industry, it shared that the proportion of medium enterprises remained miniscule when looking at the whole MSME sector. The number of small enterprises has also not grown. The bulk of MSMEs, with a share of 91.6 percent, were micro enterprises.

The DTI attributes the poor performance of MSMEs to the high cost of doing business, lack of access to finance and market information, and low productivity and competitiveness.

This is somewhat validated by the continuing weak position of the Philippines in the World Bank’s yearly Ease of Doing Business Survey, particularly on how the country’s businesses have fared in importing and exporting.

The World Bank survey showed that the Philippines has one of the highest costs in the region to import and export, which definitely affects the performance not just of MSMEs, but also of larger enterprises.

Global competitiveness

However, more basic for linkages to foreign markets and middlemen to flourish and grow, the products of our SMEs must be competitiveness in terms of quality and cost – and presentation.

Large companies like Universal Food Corp. are able to leverage, to a certain degree, in the international market on their inherent knowledge of food products that have been tested in the Philippine market. But SMEs do not have that luxury.

Philippine dried mangoes, for example, may be better tasting than those from India or Thailand, but lose hands-down in the international market when it comes to packaging and innovation on the basic product. We all know what attractive packaging can do.

We’ll continue this discussion in the next column.

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