COBENTH Lecture Notes: INTRODUCTION TO SMALL AND MEDIUM ENTERPRISES

Lesson 1
Introduction to Small and Medium Enterprises

Definition of Terms
1. Entrepreneurship
○ A dynamic process of vision, change, and creation.
○ The capacity and willingness to develop, organize and manage a business
venture.

2. Entrepreneurs
○ Entrepreneurs are innovators.
○ They recognize opportunities where others see chaos, contradiction, or
confusion and are aggressive catalysts for change within the marketplace.

3. Owner-Manager
○ Person who owns the business and remains closely associated with overseeing
its day-to-day operation; can readily exercise their influence

4. Small and Medium Enterprises (SME)

○ Non-subsidiary independent firms which consist of 11 to 250 employees

5. Human Resource Management

○ Management of people at work
○ Creates employee commitment in order to achieve superior performance
outcomes for an organization
○ Understanding employment relationships and practices to make sense of the
workings of small firms leads to misunderstanding and limited insights

6. Employment Relationship
○ Processes through which employers and employees negotiate the performance
of work tasks
○ Refers to what is going on inside a firm between an owner-manager and
employees

7. Organization
○ Social unit of people that is structured and managed to meet a need or to pursue
collective goals

Prepared by: Dr. Cristina Teresa Lim

Associate Professorial Lecturer
DSI Department, RVR College of Business
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 COBENTH Lecture Notes: INTRODUCTION TO SMALL AND MEDIUM ENTERPRISES

8. Equal Employment Opportunity (EEO)

○ Refers to freedom from discrimination on the basis of protected classes such as
race, color, sex, national origin, religion, age, disability or genetic information.

9. Strategy
○ A method or plan chosen to bring about a desired future, such as achievement
of a goal or solution to a problem.

10. Authority
○ The power or right to give orders, make decisions, and enforce obedience in an
organization.

11. Management Process

○ Process of setting goals, planning and/or controlling the organizing and leading
the execution of any type of activity.

Examples of SMEs
1. Bayani Brew
○ Social enterprise that produces all Filipino, all-delicious, all-nutritious iced tea

2. Zennya
○ Health and wellness services which are ordered and delivered through mobile
devices

3. PAPEL/Tagolwanen Women Weavers

○ Composed of a tribe of women from Bukidnon that specializes in making hand-
crafted mats or “banig”

4. Gifts & Graces

○ Foundation which aims to bridge the gap between artisan communities and
possible customers by promoting products made by active underprivileged
communities throughout the Philippines

5. Human Nature
○ A social enterprise that provides premier natural and organic products.
○ Have the following principles: pro-Philippines, pro-poor, and pro-environment

Prepared by: Dr. Cristina Teresa Lim

Associate Professorial Lecturer
DSI Department, RVR College of Business
2
 COBENTH Lecture Notes: INTRODUCTION TO SMALL AND MEDIUM ENTERPRISES

6. Skillshot
○ A team of game designers, game developers, web developers, and iOS and
Android developers that aims to publish beautiful, fun, and socially engaging
games which can be played by anyone and anywhere on any mobile device.

7. Kalibrr
○ A recruiting platform that uses assessments to drive faster hiring decisions.
○ It allows candidates to apply for jobs without the need of a resume.

8. Edukasyon.ph
○ Social enterprise in the education technology sector that connects students to
education opportunities through an online platform and promotes career
awareness among the Filipino youth

Differences Between SMEs and Large Corporations

1. Degree of Informality
○ SMEs
■ Generally acknowledged to operate along more informal lines
■ Usually have an absence or limited use of written policies and practices,
and improvised way of organizing and distributing tasks
■ Employees sometimes do not have clearly defined job roles
■ Employment relationships are conducted on a daily basis
■ Flexible and can quickly respond to challenges and opportunities

○ Large Corporations
■ More formal and has a clear organizational structure
■ Have written policies and are organized in distributing tasks among the
employees
■ Employees have clearly defined job roles
■ Structured organization with a clear division of business functions, each
supported by specialized human resources.
■ More bureaucratic and complex

Prepared by: Dr. Cristina Teresa Lim

Associate Professorial Lecturer
DSI Department, RVR College of Business
3
 COBENTH Lecture Notes: INTRODUCTION TO SMALL AND MEDIUM ENTERPRISES

Note: Informality is not suitable for all businesses and situations and as the firm grows,
there is a tendency to replace informal arrangements with more formalized ways of
operating.

2. Spatial and Social Proximity

○ Spatial and social proximity can contribute to greater employee satisfaction.
However, it doesn’t follow that it will lead to generally informal or positive
interaction among co-workers.
○ SMEs
■ Owner-manager and employees may share working space because of the
small number of people working within the firm
■ Has a more cost-efficient office space expenditure and more practical
when managing tasks to be undertaken
■ Employees can get to know each other on a personal level and build
relationships
■ Close proximity in SMEs permit opportunities for constant supervision of
employees
○ Large Corporations
■ Each department has their own area and/or office
■ Employees are limited to their own department and aren’t able to have
constant communication with their leaders
■ Supervision is done by supervisors for each department

3. Resource Poverty
○ SMEs
■ Lack access the resources of a large organization
■ Tend to be concentrated in industries subjected to price cutting, that the
relative burden of owner-managers’ salaries on revenues are greater in
smaller enterprises
■ Owner-managers are more vulnerable to internal errors and external
shocks than larger organizations
■ SMEs can find themselves subject to their environment: dependency on
a single client and without surplus resources
■ Liability of Newness - it takes time for the particular ways of working
required in the organization to become established routines, and for
interpersonal relationships between organizational members to develop

Prepared by: Dr. Cristina Teresa Lim

Associate Professorial Lecturer
DSI Department, RVR College of Business
4
 COBENTH Lecture Notes: INTRODUCTION TO SMALL AND MEDIUM ENTERPRISES

○ Large Corporations
■ Have better access to financial resources
■ Can easily enter into different industries by acquiring established
businesses
■ More stable and are not prone to external shocks
■ Have various sources of revenue and may have surplus of resources

Video Summary
A. The Digitalization of MSME's in the Philippines
○ Digitalization - refers to enabling or improving processes by leveraging digital
technologies and digitized data.

○ Digital maturity - process of how the company is learning to respond to the

emerging digital competitive environment.

○ There are 4 stages of digital maturity:

i. Digital Indifferent
● A company that is “reactive to market changes and digital efforts
do not exist”
ii. Digital Observer
● A company whose digital efforts have started but remain tactile
and in bite-sized initiatives
iii. Digital Challenger
● A company that has a strategy for the use of digital technologies
and is more proactive in market responsiveness
iv. Digital Native
● A company that has an integrated digitalization strategy and is
focused on driving continuous innovation
○ The MSMEs in the Philippines are now moving towards the “digital observer”
stage. However, 73% still remain in the “digital indifferent” stage.
○ SMEs that are digitally mature are more profitable and productive compared to
those that are indifferent to digitalization.
○ Business intelligence solutions allow firms to enhance the organizational
processes within their businesses and to share information internally and their
supply chain real time which allows employees to be more efficient.

Prepared by: Dr. Cristina Teresa Lim

Associate Professorial Lecturer
DSI Department, RVR College of Business
5
 COBENTH Lecture Notes: INTRODUCTION TO SMALL AND MEDIUM ENTERPRISES

○ Challenges of adapting to a digitized business:

i. Shortage of skills
ii. Cultural resistance
iii. Lack of budget and commitment from the management
● Cost of new tools and technology along with the perception that
replacing old processes and systems would be too difficult were
barriers to adopting new technologies

○ 2018 study from Bain and Co. showed that:

i. Only 16% of MSMEs are truly digitalized
ii. 56% of MSMEs are at basic level with minimal digital adoption, mostly to
facilitate communication and operations
iii. 34% use digital tools to aid sales and marketing
iv. 10% are in the advanced category, with sophisticated digitalization
applied in the various aspects of their business

○ More than 8 out of 10 (86%) SMEs in the Philippines have identified digital
technology adoption as a way to improve business processes
○ Due to the pandemic, MSMEs have shown resilience and leveraged their
technology to continue their operations and serve customers
○ Digitalization of MSMEs will play a vital role in the Philippine’s recovery and
contribute to the country’s overall economic growth

B. What is the Difference Between a Small and Large Business - Small Medium and Large-
Scale Business
○ There are many factors that affect a business (e.g. industry, country, clients).
They may also vary in size, structure, and management.
○ Small Businesses:
i. More flexible in disruptive environments
ii. Employees work closely together and change roles depending on the
needs of the business
iii. Staff tend to be experts in their industry and interact closely with
customers.
iv. Closer relationship with customers can help the business provide their
customer a more personalized service and customize their offering
depending on the needs of the customers

Prepared by: Dr. Cristina Teresa Lim

Associate Professorial Lecturer
DSI Department, RVR College of Business
6
 COBENTH Lecture Notes: INTRODUCTION TO SMALL AND MEDIUM ENTERPRISES

○ Large Corporations:
i. Have access to larger finances which gives them more options across
their business
ii. Have the ability to hire more experienced employees in large numbers
and provide them with better benefits
iii. Have teams and departments dedicated to specific tasks
iv. Are up to date with the latest technology and equipment
v. With better access to finance, they can enter into new industries and
grow quickly as well as acquire established businesses

○ Small and large companies can work together to achieve their goals (e.g. large
companies can get supplies from small businesses.)

Prepared by: Dr. Cristina Teresa Lim

Associate Professorial Lecturer
DSI Department, RVR College of Business
7