Digital revolution to boost MSME

For micro, small and medium-sized enterprises (MSMEs), two significant developments may prove to be game-changers that could transform their operating landscapes in the next few years to make them more competitive locally and globally.

The first has to do with the Ease of Doing Business (EODB) law that was passed in May last year, but only recently enabled after the President named an Anti-Red Tape Authority (ARTA) director general and the law’s implementing rules and regulations was passed last June.

The second, to be discussed further in the latter part of this column, is about the unbridled charge of digitalization on the world of SMEs.

On the EODB, expectation is high in the business community about the law’s stipulations for all government agencies and local governments to subscribe to a 3-7-20 ruling, meaning that simple transactions must be done within three days, complex transactions within seven days, and highly technical transactions within 20 days.

For MSMEs, the EODB law is expected to greatly reduce the cost of compliance by diminishing the number of steps and days to secure basic permits. Non-compliance is high among MSMEs because of the difficulties involved in securing government permits.

Reduced budget

However, many challenges continue to hog the smooth implementation of the EODB law, the most recent being the extremely reduced P72-billion budget allocation for the ARTA’s operations next year by the Department of Budget and Management (DBM) versus the P500 billion that was requested.

The proposed ARTA budget would severely restrict the agency’s operations, especially that which involves ensuring that all government entities at the local and national levels are compliant, as well as resolving complaints received by aggrieved and concerned citizens and establishments.

Also, with most staff still on contract basis while waiting for the DBM to approve the requested permanent positions, compliance inspections will be impaired when checking on complaints, which have been already increasing.

The fight against red tape, which is estimated to cost government some P700 billion annually, must be given more funds especially during its first years when many local government units (LGUs) will need assistance in setting up their systems.

Guidance by qualified ARTA personnel will be crucial in helping LGUs set up one-stop shops, electronic systems, and the use of the desired single unified business application form. A bottleneck can definitely be expected as empowered citizens start filing complaints while LGUs are just streamlining their systems.

Alibaba story

Going digital has been the mantra of big businesses more than a decade ago, but Filipino MSMEs are only seeing its true value in recent years. This is particularly evident with the number of businesses that are now diligently pursuing MSMEs to avail of their services.

How digitalization helps MSMEs is best illustrated by the Alibaba Group and China’s experience. Founded by Jack Ma, a former English teacher from Hangzhou in China, along with 17 other friends in 1999, Alibaba continues to adhere to its initial mission of championing small businesses through technology, particularly the internet.

Today, the Alibaba Group is valued at over $500 billion, and is one of the top 10 most valuable public companies in the Global 2000 list. In China, it commands a strong consumer-to-consumer (C2C), business-to-consumer (B2C), and business-to-business (B2B) network through the digital world.

It had an active consumer base of 674 million in China alone by end June, taking pride in the fact that 70 percent of its new users come from less developed areas. Alibaba has contributed considerably to making China the largest cashless economy in the world.

Great enabler

What the Alibaba story tells us is that e-commerce is a great enabler of MSMEs, and that the Philippines would want the same dynamism that the founders of this group of companies had to create an enabler to grow small entrepreneurs.

Currently, the Philippine Statistics Authority (PSA) puts the number of MSMEs at 99.56 percent of total registered establishments, a figure that has stayed at about the same for more than a decade. This only shows how hard it has been for MSMEs to break into the large enterprises list.

For most Filipino MSMEs, Facebook has been an indispensable tool to promote their products. Let’s face it, though. This social media site is not the most efficient channel for promoting and trading of goods and services, especially if one aims to break out on a nationwide scale.

Many SMEs are also afraid to invest in digital solutions that will streamline their operations. However, development in artificial intelligence, like simple chatbot apps, has inexpensive for SMEs to provide a useful frontline customer service interface.

Building up databases, a crucial tool for expanding business reach, has become indispensable for MSMEs to widen their scale of operations, and especially for SMEs, may even opens doors to international markets.

Initiatives by the Department of Trade and Industry and the private sector to introduce digital enablers for MSMEs are a step in the right direction, but these will have to be recognized by small entrepreneurs as worthwhile interventions.

The Philippines must improve its digital infrastructure and improve its internet bandwidth speed, one that is regarded as slowest and relatively more expensive compared to other countries.

Lastly, clearer and simple government regulations must be spelled out that will facilitate the migration of MSMEs to a digital platform. Hopefully, when the time comes, the EODB law will be in effect and on its way to truly easing how Filipinos do business.

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Should you wish to share any insights, write me at Link Edge, 25th Floor, 139 Corporate Center, Valero Street, Salcedo Village, 1227 Makati City. Or e-mail me at [email protected]. For a compilation of previous articles, visit www.BizlinksPhilippines.net.