THERE is a need for the Philippines to maximize the potential of its small and medium enterprises (SMEs) through one, having them internationalize their business operations, an economics professor said.
Ramon Clarete, professor of the University of the Philippines (UP) School of Economics, said SMEs remain as potential resources yet underperformed.
In his presentation during the “Conference on Gearing Up for External Competitiveness” in Bacolod City earlier this week, Clarete said 30 percent of the country’s exports are provided by small and medium scale enterprises.
“There are many of them, but they are not participating in trade export. Their businesses are not international,” he said, adding that 70 percent of SME operations are domestic according to a survey conducted in Europe.
In developing countries in Asia, including the Philippines, most of the SMEs whether selling domestic or abroad are into agriculture, furniture, food processing, and handicrafts.
So given such SME profile, Clarete said there are definitely great advantages of internationalizing the operations of these enterprises.
For the economics professor, internationalization of SMEs means having a relationship with foreign partners whether through exports, imports, or foreign direct investments.
Through which, most of SMEs into export and import businesses tend to have higher sales growth, Clarete said.
In terms of employment, SME exporters have seven percent employment growth compared to non-exporters with only three percent.
Same as importers, they have eight percent employment growth much higher than non-importers with only two percent.
“Thus, if we want to have more growth created by the tax reform law, I think we need to support internationalization of SME businesses,” he added.
Aside from higher sales and employment, other benefits from internationalization include a higher degree of innovation and sustainable growth.
“SMEs tend to be more innovative especially if they have access to better quality raw materials,” Clarete said.
The UP economics professor also underscored some internal barriers that may prevent local SMEs to go internationalize. These include mindset, and lack of information.
Some SMEs he said do not have the confidence to penetrate the foreign market, and they have limited appreciation on the potential benefits of tangible opportunities for internationalization.
Also, SMEs lack information on markets including standards that they have to be aware of. “They want to sell but they do not know how to do it.”
Clarete said some local enterprises do not know how to use data and information in order to build their businesses.
“They have limited understanding of market conditions and customers’ context. Their scale is also contributing to the difficulty to gather such information which requires so much cost for them,” Clarete said.
He added: “This is where probably the government assistance should be needed to be able to bring down information cost for SMEs.”
For external barriers, the economics professor cited lack of familiarity with foreign procedures and documentation that can be addressed by the government.
Clarete believes that electronic commerce (e-commerce) is an important sector for SMEs to be very active.
However, Philippines remains low in terms of e-commerce among countries in East Asia.
Clarete said it has something to do with high internet access cost, which is relative to the duopoly of the telecommunications industry in the country.
“We should do something about it because SMEs can start their business grow through e-commerce and eventually diversify their markets,” he added.
Moreover, trade agreements have been identified as one of the drivers of internationalization of SMEs.
Clarete said it is very important for the Philippines to be always open to integrate its economy to the rest of the world through trade agreements.
Another driver is the improvement in logistics and communication systems.
The country has benefited from information technology revolution. It has created its business process outsourcing (BPO) industry successfully.
“So it is important for us to innovate and scale up the chain amid the looming automation in the BPO industry,” he added.
SMEs in Negros Occidental are supporting the push for internationalization. However, they see a need for the government to provide enabling environment to the businesses, especially exporters.
Mary Ann Colmenares, chairman of the Provincial Micro, Small and Medium Enterprise Development (MSMED) Council, said that they need a lot of support from the government for them to capacitate themselves.
“We have a lot of potentials but then we have to increase our capacities,” she said, adding that “internationalization is the only way we can further level up our enterprises to be competitive and explore the global market.”
During the conference, Colmenares said raised the concern of exporters in the province on not availing themselves of packing credits, which was being provided before.
Now, exporters need to look for money to produce particular orders from clients abroad. “This is a discouragement on the part of the exporters,” she said.