How will Philippine MSMEs sustain global trade?
The micro, small and medium enterprises (MSMEs) in the Philippines play a major role in the economic growth. They help alleviate poverty by creating jobs, push industrialization in rural areas and utilize local resources.
The MSMEs share at least a quarter of the country’s total exports, comprising 99 percent of the total businesses and generating over 64 percent of total jobs, according to the Department of Trade and Industry.
Many sectors, including the government, have recognized MSMEs’ potentials to become a part of the global value chain (GVC) rather than just direct exporters. They are eyed to be the new drivers in advancing the economy.
But, most of them face difficulties in sustaining their businesses, let alone exporting.
Start-ups struggle to survive, especially during their first three years, said Dr. James Dennis Gumpal, owner of the Bluesmith Company, an exporter of metal crafts. The company is one of the suppliers of Philippine gifts and premiums to be featured on the Online Developing Country Sourcing website of the Hinrich Foundation.
Micro and small businesses need to be exempted from paying corporate taxes for a certain period to allow them to stabilize, Gumpal said. He cited the lack of financial support for MSMEs in the country. Banks provide loans based on track records, which MSMEs do not have.
It was proposed in a report that the government has to allocate Php20 billion ($433 million) loans for MSMEs in order for them to lead in the economic expansion. They must be able to avail of this without going through extensive documentation processes, collateral requirements and high interest rates.
As more businesses go online, MSMEs should know the current trends and secure link to GVCs by peer networks.
At the sidelines of the Asia-Pacific Economic Cooperation summit in Manila last year, Philippine leaders came up with the APEC Trade Repository. With this new web portal, MSMEs will have access to foreign markets, particularly Asia Pacific economies, and accurate information on export and import processes and requirements.
By conducting business on the Internet, operating costs will be reduced, including payment for a middleman and maintaining a physical shop.
Globalizing SMEs lies in innovation, according to Senior Director World Bank Group Global Anabel Gonzalez in her article in November.
“Effective support programmes integrate and sequence delivery of SME finance, business development services and technology extension,” she said.
While support and effective implementation of programs are on the way, most MSMEs, including Gumpal, reduce costs by subcontracting processes such as material preparation, assembly and finishing,
Instead of hiring more workers, companies rely 70 to 80 percent of their production on subcontractors to minimize costs and become competitive in global market, said Cherrilyn Baylon, Philippine export consultant of the Foundation.
Lorie Ann Cascaro works as a Senior Copy Editor for the Hinrich Foundation, based out of the Manila office. She began her association with the Foundation in 2014 after being awarded a global trade leader scholarship to Hong Kong Baptist University, where she earned her master’s degree in International Journalism Studies.
About the author – Lorie Cascaro