Friday, November 07, 2008 SMEs in these trying times By Agnes Cinco-Sequino
A healthy and competitive market environment is one in which interdependence reigns, where stakeholders are free to make decisions and interact with each other in pursuit of providing the best products and services.
However, the decisions that these stakeholders make are affected by certain factors, which may pose as either constraints or sources of opportunities for them to grow and develop.
The stakeholders in a market environment are the players in the market, which may be composed of the key people whose interests are affected by the organization’s activities. They may be in the government and private sector, who plan, implement and evaluate their different programs with the end view of successfully achieving their own goals of providing value-added products and service.
Small and medium enterprises (SMEs) are considered as the backbone of the Philippine economy. A small enterprise is a business with a capital and total value of assets of above P3 million to P15 million, while medium enterprise has a capital of a total value of assets of more than P15 million to P100 million.
As part of economic reforms of the Arroyo administration, the government ensures the country’s continual and sustainable growth through the development of SMEs.
However, in these trying times where our reforms and programs are greatly affected by the financial crunch in the US, will the SMEs be able to sustain their presence in a developing country like ours? Will they be affected by the changes that are happening in the countries that they are dealing with, such as those that supply raw materials as well as their markets? Definitely, yes.
It is important to note that SMEs play a vital role in economic development. SMEs offer the most economical use of capital in relation to job creation and provide the strongest growth channel for regional development. They are the recognized vehicle for growth in today’s regionally and globally interdependent and competitive economy.
However, a University of Asia and the Pacific study concluded that there major trends that SMEs will have to contend with:
a) the globalization of enterprises, with tariff and non-tariff barriers being reduced by trading nations worldwide; b) the considerable ease of movement across borders of capital goods, services and information technology; and c) the reduction of the cost of goods brought about by the rapid technological change giving consumers a wider choice for their hard earned income.
With these trends, SMEs must be prepared to register in a manner where competition will be considered as a challenge and not as a threat. The above trends are examples of changes which SMEs must be updated with, through a thorough analysis of the market environment.
SME entrepreneurs who need additional information in beating competition may seek help from government bodies like the Department of Trade and Industry (DTI), whose linkages with other organizations help strengthen the SMEs capability to survive and develop.
Organizations like the Philippine Small and Medium Business Development Foundation, Center for International Trade and Exportations and Missions, Department of Science and Technology, Development Academy of the Philippines for Training and Consultation, Development Bank of the Philippine for financing assistance and many other organizations that provide training, financial and marketing assistance.
In a forum by the Bangko Sentral ng Pilipinas (BSP) that I attended, one representative of a medium-sized export company asked what BSP can do to help these SMEs whose operations are greatly affected by the financial crunch. She was plainly told, “Why don’t you shift markets to countries where the currency is not in dollars?”
The BSP representative may be right, but did that answer the question posed by the entrepreneur? I think what the entrepreneur expected was more than what the company can immediately do—after all shifting markets to other countries is not the easiest thing to do—but what the BSP can do to counter the situation that we are in now. After all, the forum was intended to disseminate information on the role of the BSP in economic development. The entrepreneur probably expected the answers to focus more on changes in policies regarding bank loans, as well as rules and regulations regarding loans available for SMEs, among others.
How will the financial crisis affect the availability of financing for SMEs? Loans will be harder to get and the rules and regulations regarding risky loans will become increasingly strict. This is bad news for SMEs, especially startup SMEs, since they form the riskiest borrowers. But then again, what’s new?
Loans to SMEs from the banking sector have always been hard to get.
