Microeconomics:

Philippine MSMEs and the Modern World

by Benmar O. Tabuso, BA Pol Sci

I. Importance of MSMEs in the Philippines

An MSME in the Philippines is defined as any business activity or enterprise engaged in industry, agri-
business and/or services that has: (1) an asset size (less land) of up to PhP100 million; and (2) an
employment size with less than 200 employees. (Based on the definition under Republic Act No. 9501)

Based on these categories, it is classified as micro, small or medium regardless of the type of business
ownership (i.e., single proprietorship, cooperative, partnership, or corporation).

CATEGORY
ENTERPRISE
By Asset Size By Number of Employees
Micro Up to P3,000,000 1 - 9 employees
Small P3,000,001 - P15,000,000 10 - 99 employees
Medium P15,000,001 - P100,000,000 100 - 199 employees

The highest number of enterprises was registered in 2014 at 946,988, with 99.6% of these enterprises
accounted for by MSMEs -- a great number of which (90%) are classified as microenterprises. Total
number of MSMEs during this period was 940,886.

In both developed and developing economies, MSMEs dominate the economy. In many instances, they
constitute more than 99 percent of all enterprises.

MSMEs were predominantly in the wholesale and retail trade. Others are in the agriculture sector, fishing,
mining and quarrying, accommodation and food services sector, manufacturing sector, construction
sector, and repair of motor vehicles and motorcycle industries, among others.

Micro, small and medium enterprises (MSMEs) have a very important role in developing the Philippine
economy.
 They help reduce poverty by creating jobs for the country’s growing labor force.
 They stimulate economic development in rural and far-flung areas.
 They serve as valuable partners to large enterprises as suppliers and providers of support services.
 They serve as breeding ground for new entrepreneurs and large corporations.

A vibrant MSME sector is thus an indication of a thriving and growing economy. Despite policies that aim
to provide an enabling environment for MSME development, the MSME sector still faces various
constraints that prevent it from realizing its full growth and potential.
II. Philippine Entrepreneurship Policy

The country’s first major push into entrepreneurship began in the 1970s.

The 1987 Philippine Constitution recognized entrepreneurship as a driver of economic growth. It

guarantees the promotion of industries and employment. It vows to protect Filipino enterprises against
unfair competition and trade practices and commits to give opportunities for private enterprises to grow.

As MSMEs assert their roles in the country’s growth story, the government has woven MSME-oriented
policies in different facets of its development agenda. Over the years, various laws have been enacted to
boost entrepreneurship in the Philippines. The most basic and fundamental of which is the Magna Carta
for Small Enterprises which was legislated in 1991 under Republic Act 6977 and amended in 1997 and
2008.

The Magna Carta for Small Enterprises establishes the state policy to “promote, support, strengthen and
encourage the growth and development of MSMEs in all productive sectors of the economy, particularly
rural/agri-based enterprises” and to foster “entrepreneurship, support entrepreneurs, encourage the
establishment of MSMEs and ensure their continuing viability and growth and thereby attain countryside
industrialization.” (Republic Act 9501)

The law sought to achieve these objectives by:

1. establishing a favorable business environment,
2. improving access to financing,
3. providing adequate business support,
4. providing training on entrepreneurship and worker skills,
5. providing linkages between SMEs and large firms, and
6. working in partnership with the private sector.

The government plays a crucial role in MSME development as it provides the essential policy and program
environment to support its growth. The Micro, Small & Medium Enterprises Development (MSMED)
Council is the primary government body responsible for developing MSME promotion policies and for
providing guidance on implementing MSME programs.

It is attached to and chaired by the Department of Trade and Industry (DTI), which is responsible for
developing and regulating business enterprises. Several bureaus and corporations under DTI, as well as
its attached agencies, implement programs to promote MSME development.

MSMED COUNCIL. The MSMED Council is a policy recommendatory and coordination body. Its primary
mission is to help “establish the needed environment and opportunities conducive to the growth and
development of the MSME sector.” One of its key responsibilities is that of coordinating and integrating
various government and private sector activities relating to MSME development. Apart from the
Chairman, the Council has ten members. The Bureau of Micro, Small and Medium Enterprise Development
(BMSMED) of the DTI serves as the MSMED secretariat.
III. Department of Trade and Industry and other Offices

Implementation of MSME policies are carried out by the DTI through its Regional Offices (17 offices) and
Provincial/City Offices (81 offices). The Bureau of Export Trade Promotion, Export Marketing Bureau, and
the Foreign Trade Services Corps assist in expanding the market access and internationalization of MSMEs.

The following are the DTI attached agencies, bureaus and corporations that deliver MSME programs and
services:

1. Bureau of Domestic Trade Promotion

Promotes efficient marketing and distribution of local products and services. BDTP implements programs
and services to strengthen linkages among MSMEs nationwide.

2. Export Marketing Bureau

Enhances capabilities and global competitiveness of exporters and would-be exporters by providing them
timely and relevant information and assistance on international markets.

3. Foreign Trade Service Corps

Promotes Philippine exports and investments overseas through various marketing and commercial
intelligence activities.

4. Design Center of the Philippines

Assists MSMEs in the areas of product/package design, product technology demonstration, design and
technical information, and library information on design-related topics.

5. Philippine Trade Training Center

Conducts training programs, including export marketing and management, entrepreneurial management,
quality and productivity, and trade exhibition. It also offers post-training advisory and consulting services.
It rents out its facilities as training, exhibition, and events venue.

6. Center for International Trade Expositions and Missions

Organizes international trade fairs where MSMEs can participate in order to promote their products and
services to target customers. It assists exporters in the areas of marketing, promotion, and capability
building.

7. Philippine International Trading Corporation

Provides trade and trade-related services to private enterprises. These include buyer-supplier matching,
export documentation, product sourcing, quality inspection and assurance, as well as use of PITC custom
bonded warehouse for storage, handling, and trucking of products and raw materials.

8. Philippine Economic Zone Authority

Sets the general policies for, operates, manages, and develops economic zones in the country.
9. Bureau of Micro, Small and Medium Enterprise Development
Initiates and implements projects for MSMEs in the areas of training, technology transfer, financing, and
marketing. It serves as Secretariat of the MSMED Council.

10. DTI Regional and Provincial Offices

DTI has 17 regional offices and 81 provincial/city offices that cascade DTI services and assists MSMEs in
the countryside.

11. Small Business Corporation

Promotes financing and credit delivery systems for MSMEs.

IV. Challenges to MSMEs in the Modern World

If we look around us, we will see many items we use which are imported from abroad or which have
components imported abroad. The books we read, the food we eat, the watches we wear, the buses we
ride on, the radio we listen to, the TV sets from which we watch our favorite programs, the movies we
see – many of these things come from abroad or if they are produced here, have parts or components
produced abroad.

We are experiencing this today because of the concept of “Trade Liberalization” which dominates the
world economy at present. Trade liberalization means the removal or reduction of restrictions on the free
exchange of goods between countries. This includes the removal or reduction of tariff obstacles, such as
duties and surcharges, and nontariff obstacles, such as licensing rules, quotas and other requirements.
The easing or eradication of these restrictions is often referred to as promoting "free trade."

Behind the concept of Trade Liberalization, MSMEs in the Philippines faces more competitors especially
those from the foreign countries which could become an obstacle for success. But for other MSMes, this
could be an opportunity to them for further development as they can also be exposed to the international
spotlight.

Challenges. Some of the major challenges confronted by MSMEs in the modern world include:

1. Poor and inadequate infrastructural facilities.

Deficiencies in the infrastructure and poor support facilities marked by inadequate access to
basic facilities like water, power supply, road connectivity etc. adversely affect this sector and
contribute to enhance their operational cost by rendering the MSMEs less competitive in the
challenging market situations.

2. Inadequate access and marketing linkages.

Poor marketing linkages characterized by inadequate Government support and patronage,
lack of adequate marketing infrastructure/ network facilities continue to be a greater
challenge for marketing and sale of MSME products. In a non-cluster situation, these
enterprises get segregated and are unable to ensure reduction in procurement cost from big
companies and fail to streamline the output-supply chain.
 3. Technological obsolescence and inadequate application of new technology.
Most of the industries today require application of advanced technology in their operations
whereas in the Philippine context continuance of low technology base results in low
productivity by making these enterprises uncompetitive in the ever-widening market
contexts. Apart from enhancing productivity and quality, new technology should be adopted
for an overall transformation and competitive edge.

4. Lack of skilled human resources.

Non-availability of skilled workforce and better managerial/entrepreneurial expertise at
affordable cost near the location of enterprises is another such big challenge for the MSMEs
in our country. Lack of managerial competence, absence of proper training on resource
planning and capital management etc. hinders the growth of enterprises.

5. Poor adaptability to emerging international trends.

Most of the small entrepreneurs are unaware of the modern marketing and business
strategies. As a result, they are unable to cope quickly with changing market scenarios.
Though the products they produce has huge market potential but they unable to opt for
efficient marketing techniques.

SOURCES:
1. https://www.senate.gov.ph/publications/AG%202012-03%20-%20MSME.pdf
2. OECD
3. IOSR Journal of Business and Management (IOSR-JBM). e-ISSN: 2278-487X, p-ISSN: 2319-7668. Volume 16, Issue 5. Ver. V (May. 2014),
PP 08-11. www.iosrjournals.org