Sme In Philippines

I. INTRODUCTION AND OVERVIEW

Small and Medium-scale Enterprises plays an important role in economic development worldwide. Many developing countries in fact have placed Small and medium enterprise development and promotion on top of their economic agenda. With the failure of past industrialization policies favoring large enterprises to stimulate wide-ranging development, SMEs are being given renewed emphasis as engines of economic growth, employment potential and poverty alleviation. SMEs play an important role particularly in industrial production and economic growth in less developed, developing and transitional economies worldwide.

II. DEFINITION OF SMALL AND MEDIUM ENTERPRISE

There is no regional, or global concensus on the definition of an SMEs. Different countries adopt different criteria such as number of employees, invested capital, shareholders funds, sale volume and production capability for defining SMEs. The most commonly used index is the number of employees. A summary of the definition of SME can be seen at the table below:

Recently, Republic Act No. 9178, otherwise known as the Barangay Micro Business Enterprise (BMBE) Act of 2002 has redefined the categories. Hence, the present structure, by law, is as follows :

Micro - up to 3,000,000

Small - P3,000,001 - 15,000,000

Medium - P15,000,001 - 100,000,000

Large - above P100,000,000

III. Current developments of the SME Sector

SMEs account for 99.7% of registered business enterprises, contribute about 32% of the country’s GDP by providing employment and income and by generating exports. Below is chart of the Philippine’s industry structure and statistics as summarized and identified by industry classification:

As seen in the chart, only 2,958 firms or 0.3% of the total number of registered business in the country are large scale enterprise, 91.7% micro enterprise and the remaining 8% belongs to the Small and medium scale businesses.

Number of Employees by Sector and Size Distribution

As seen in the statistics and the charts, micro enterprises account for 91.7% of the overall enterprises. The small, medium and large enterprises have smaller shares in terms of number or size of the establishments but have almost the same contribution in employment, this contributes to a more balanced distribution of incomes. SME sector employs 69% of the total labor force, with this it is safe to say that SME are the seedbed of employment particularly in developing economies such as the Philippines

SME has a very good impact in terms of employment per establishments and the average cost per job. These are indicators of SMEs’ ability to enhance job creation and overall employment prospects. This show us the increased importance and emphasis on these two sub-sectors in terms of improved services and access to employment.

In terms of geographic distribution of enterprises throughout the country indicates a high concentration in the National Capital Region (NCR), which accounts for 23.9% of all establishments and 40.1% of all employees. The five regions subject to the present study (NCR, Regions 3, 4, 7 and 11) hold a combined share of 62.5% of total establishments. Similarly, the regions account for 72.1% of total employees. As a result, around two-thirds of SMEs are concentrated in the five regions

Breakdown of Business Establishments by Size and Region

These five regions also account for 76.3% of total employees. While also in these regions, the medium and large establishments have relatively larger concentration than micro and small enterprises. This indicates that direct services to existing enterprises is more likely in NCR, Regions 3, 4, 7 and 11, stirring up more competition in these areas.

Breakdown of Employment by Size of Enterprise and Region

Despite the dominance of SMEs in the Philippine industry with over 99% of all establishments, nearly 70% of total workforce, and nearly 1/3 of aggregate value added, their opportunities to improve are still enormous. But the productivity of SMEs has fallen behind in comparison with the performance of large Philippine enterprises or of SMEs in nearby Asian countries such as Malaysia, Singapore and China. This is traced mainly to the interrelated factors of: fierce competition in export markets that globalization has spawned, aggravated by the inability of Philippine SMEs to update themselves with fast changes on products and manufacturing methods, and technical know how and Lack of information on available financing programs, strict collateral, equity and documentation requirements and high interest charges by banks. Because of these factors hindering SMEs, they are now threatened from growing or even worse, from continuing to exist. Adding to this, SME products are vulnerable to imported substitutes in the local market This challenge the demand for their goods thereby forcing SMEs to find efficient ways to make sure that their resources are allocated properly thru strategies and programs. The government also have been providing assistance to SMEs thru different programs as implemented by the Department of Trade and Industry. Also with the establishment of the Magna Carta for SMEs which provides a very comprehensive analysis of the growth prospects of the government when it comes to SME. Moreover, the government showed their support to SME because they trust that SME are our main drivers of economic growth given their huge participation in the market.

Internationally, SMEs have also been a major concern for the APEC summit for the past years with their Annual Small and Medium Enterprise Ministerial Meeting. APEC have been discussing initiatives in driving growth through economic reform including free and open trade and investment, macro-economic stability, adherence to the rule of law, prudent fiscal management by governments, and enhancing the business operating environment for SMEs to enable them to grow and prosper throughout the APEC region. The ministers also agreed that SME growth shall be stimulated