In Focus Archived (March 2014)

The Philippines is a nation of micro, small, and medium enterprises (MSMEs). More than 99 percent of the total number of establishments in the country are MSMEs. In terms of employment, small firms also dominate, accounting for more than 60 percent or 3.4 million jobs. Despite its size, the sector has yet to provide a significant boost to the domestic economy. The economic performance of MSMEs, according to PIDS industrial sector expert Rafaelita Aldaba, has been subdued as shown by low levels of labor productivity and value-added contribution to manufacturing. Various challenges have hobbled the growth of small enterprises, resulting in a hollow middle characterized by weak backward linkages between large firms and small suppliers. Small and medium enterprises (SMEs) have also failed to penetrate the lucrative export markets.

SMEs can be a potent force for economic development if the right policies are in place to increase their competitiveness and thus allow them to latch on to regional production networks that have been a source of tremendous growth for East Asian economies in recent years. Research by PIDS has pointed the way forward for SME development, which hinges on a new industrial policy that will rebuild the capacity of the sector and deepen the linkages between large and small firms. In 2013, PIDS was tapped by the Department of Trade and Industry-Board of Investments to lead in the formulation of a comprehensive industrial roadmap that will facilitate the integration of different industries, including SMEs, and transform manufacturing into a major source of growth and employment.

The experience of countries that have been successful in SME development could also prove useful. PIDS President Gilbert Llanto cites policies and practical programs to enhance entrepreneurship and SMEs in Taiwan and Korea, with a common strategy of providing a nurturing environment for start-ups and existing SMEs and to make it easy for small and medium entrepreneurs to conduct their businesses. The best way to go, he says, is by providing support to SMEs to enable them to become innovative and competitive and commercialize new ideas, innovations, and new technologies.

You may access these and other PIDS studies on SMEs as well as industrial policy, industry roadmaps, firm innovation, and manufacturing sector competitiveness from the SocioEconomic Research Portal for the Philippines . Simply type the relevant keywords in our Search box.