Micro, Small, and Medium Enterprises

(MSMEs)Presenter: Engr.Eufemia A. Santos

DM 201 Strategic Management of n Engineering Enterprise

Professor: Jo B. Bitonio, DPA

MSMEs DefinedMicro, small, and medium enterprises (MSMEs) are defined as any business activity/enterprise engaged in industry, agri-business/services, whether single proprietorship, cooperative, partnership, or corporation whose total assets, inclusive of those arising from loans but exclusive of the land on which the particular business entity's office, plant and equipment are situated

By Asset Size

Recently, Republic Act No. 9178, otherwise known as the Recently, Republic Act No. 9178, otherwise known as the Barangay Micro Business Enterprise (BMBE)Barangay Micro Business Enterprise (BMBE) Act of 2002 Act of 2002 has redefined the categories. Hence, the present has redefined the categories. Hence, the present structure, structure, by law, is as follows :by law, is as follows :

Republic Act (RA9501): Magna Carta for Small Enterprises of 2008

•a law to promote, support, strengthen and encourage the growth and developments of MSMEs in partnerships with the private sector.•Banks be it private or government are mandated to increase their loan portfolios from 6 to 8 percent for micro and small and maintain the 2 percent allocation for medium-sized companies. The penalty for non-compliance is not below P500,000. •To avail of this financial assistance, these enterprises must be registered first with appropriate government agencies (DTI, SEC, CDA, LGUs).

RA No. 9178: Barangay Micro Business Enterprises Act of 2002

Provided a business capital or assets do not exceed P3 million, a registered enterprise is entitled to the following:(a)guaranteed registration approval within 15 working days(b)reduced local taxes and fees(c) exemptions from income tax and minimum wage(d)availability of special financing and credit guarantees windows under DTI’s SME Unified Lending Opportunities for National Growth (SULONG) program(e) technology transfer; product and management training, and marketing assistance.

Role and Importance of MSMEs

MSMEs play a major role in the country's economic development through their contribution in the following:

• rural industrialization• rural development and decentralization of industries• creation of employment opportunities and more equitable income

distribution• use of indigenous resources• earning of foreign exchange (forex) resources• creation of backward and forward linkages with existing industries• and entrepreneurial development.

•They are vital in dispersing new industries to the countryside and stimulating gainful employment.

•MSMEs are quick in assimilating new design trends, developing contemporary products, and bringing them to the marketplace ahead of the competition.

•MSMEs are quick in assimilating new design trends, developing contemporary products, and bringing them to the marketplace ahead of the competition.

•MSMEs are notably skillful in maximizing the use of scarce capital resources and are able to partner with large firms by supplying locally available raw materials in unprocessed or semi-processed forms

•MSMEs can act as the seedbed for the development of entrepreneurial skills and innovation.

MSMEs' Contribution to the Economy

•MSMEs contribute to the creation of wealth, employment, and income generation, both in rural and urban areas, thus, ensuring a more equitable income distribution.

•MSMEs provides the economy with a continuous supply of ideas, skills, and innovations necessary to promote competition and the efficient allocation of scarce resources.

•As of 2009, the MSME sector accounted for about 99.6% of the registered businesses in the country by which 63% of the labor force earn a living. Around 35.7% of the total sales and value added in the manufacturing come from MSMEs as well

Statistics

These types of businesses account for 99.6 percent of all registered businesses in the country and employ 70 percent of the country's workforce. MSME's also produce about 30 percent of the Philippines' total output.

employs 70% of the workforce (Benel P.

Lagua )

“MSME's are the real backbone of our economy. People do not realize that your businesses have greater direct impact on Filipinos' lives than do

big players,” Senator Edgardo J. Angara during the launch

of the Philippine Home-Based Business and Career Summit Expo 2011 last August 12 at the SM Megatrade Hall.

But more than this, MSME's provide opportunities to those who could not have started businesses otherwise. Studies have shown that through MSME's, disadvantaged members of society, like the elderly and disabled, are able to earn income. In fact, about 30 percent of the poor in our country have turned to entrepreneurship to get by

An Asian Development Bank (ADB) study shows that 50 percent of innovations during the 20th century were generated by new and small firms

Number of Establishments

As of 2009 count, there are 780,437 business enterprises operating in the Philippines. Of these, 99.6% (777,357) are micro, small, and medium enterprises (MSMEs) and the remaining 0.4% (3,080) are large enterprises. Of the total number of MSMEs, 91.4% (710,822) are micro enterprises, 8.2% (63,529) are small enterprises, and 0.4% (3,006) are medium enterprises.

Sectoral DistributionMajority of the 777,357 MSMEs in operation in 2009 are in the wholesale and retail trade industries with 385,610 business establishments; followed by manufacturing with 111,987; hotels and restaurants with 97,298; real estate, renting, and business activities with 47,654; and other community, social, and personal services with 44,313. These industries accounted for about 88.4% of the total number of SME establishments.

Geographical Spread of MSMEs

Top Five (5) Locations of MSME Establishments in the Philippines1.National Capital Region2.Region-4A CALABARZON3.Region 34.Region 75.Region 6

Geographical Spread of MSMEs

Majority of the MSMEs in operation in 2009 can be found in the National Capital Region (NCR), with 210,648 business establishments; Region 4-A (CALABARZON) with 114,676; Region 3 (Central Luzon) with 79,445; Region 7 (Central Visayas) with 45,427; and Region 6 (Western Visayas) with 45,382. These top five (5) locations accounted for about 63.7% of the total number of MSME establishments in the country..

Employment

MSMEs generated a total of 3,595,641 jobs in 2009 versus 2,094,298 for the large enterprises. This indicates that MSMEs contributed almost 63.2% of the total jobs generated by all types of business establishments that year. Of these, 30.4% or 1,731,082 jobs were generated by micro enterprises; 25.5% or 1,449,033 by small enterprises; and 7.3% or 415,526 by medium enterprises.

EmploymentBy industry sector, MSMEs in the wholesale and retail trade generated the most number of jobs (with 1,250,453) in 2009 followed by MSMEs in manufacturing, 637,524; hotels and restaurants, 482,357; real estate, renting, and business activities, 284,406; and education, 225,016

Majority of the jobs are generated by MSMEs in the National Capital Region (NCR) with 1,360,440 jobs; followed by MSMEs in Region 4-A (CALABARZON), 466,648; Region 3 (Central Luzon), 319,340; Region 7 (Central Visayas), 235,091; and Region 6 (Western Visayas) 193,543.

MSMEs account for 25% of the country’s total exports revenue. It is also estimated that 60% of all exporters in the country belong to the MSME category. MSMEs are able to contribute in exports through subcontracting arrangement with large firms, or as suppliers to exporting companies.

Exports Contribution of MSMEs

Loans lent to SMEs All lending institutions are required to lend set aside at least 6% of their total loan portfolio to small enterprises and at least 2% to medium-sized enterprises. The Republic Act 6977 enacted in 1991 (the Magna Carta for Small Enterprises) required 10% more to be diverted to SME’s. Then, it was amended in 1997 under the Republic Act 8289 to extend the applicable period to 2007 and lower the minimum level to 6% and 2%. The Bangko Sentral ng Pilipinas is mandated by law to monitor this initiative.

Sales and Census Value-Added

•MSMEs contribute around 35.7% of the total sales and census value-added in the manufacturing industry, according to the National Statistics Office (NSO - 2009) .

Tradeline Philippines is an online database service that provides product search listing thousands of manufactured exported Philippine products complete with product specifications and is a business search allowing users to contact Philippine exporters, suppliers and local/foreign buyer details and the products/services they manufacture / provide and export

Tradeline Philippines

5. Exponet

The Bureau of Export and Trade Promotion's (BETP) Export Assistance Network (EXPONET) helps exporters and prospective exporters’ access information and resolve specific problems related to exporting

Exponet provides information on export seminar schedules, export organizing, export procedures and documentation, import facilities for exporters, buyer linkages, export financing and incentives, product raw material sourcing and other statistical information. The agency also assists exporters in export-related problems / trade complaints.

Deficiencies in the present system of SME statistics1. Timeliness

Statistics on the census of establishments (done every 5 years) and the annual survey of establishments are usually released 15-24 months after the year. This makes the data more or less an imprecise tool for analysis and decision-making. In the same manner, BSP collects information on the loans lent to SMEs (in compliance with the Magna Carta for Small and Medium Enterprise) every quarter. The data athered is usually released only after 3 months.

The major classification used by most countries to define SMEs is through assets and employment size. However, the size ranges of their classification differ, since developed countries have large industries than the less developed ones. Hence, what might be considered as “small” by developed countries will already fall into the “medium” or “large” category for developing countries like the Philippines. Thus, cross compatibility with other countries for cross country comparison, is sometimes inappropriate or could not be used as basis for a policy recommendation.

2. Cross compatibility with other countries for cross country comparisons

3. InadequatenessThe scope and coverage of SME statistics are limited to: 1)the number of establishments,2)employment contribution, and 3)regional distribution.

More important data which will help policy makers and businesses to react quickly in a competitive environment are usually not available. These statistics include:

There are confidentiality clauses in census for firm level data. This cannot be accessed at the National Statistics Office because their agency has to comply with the rules of confidentiality.

In similar ways, banks also ensure that access to customer information is limited to selected bank employees and are very conservative in disclosing client information.

4. Availability

The Philippines has a large section of small business constituting the so-called underground or informal economy. This refers to the small scale units in the national economy, which produce and distribute goods and services without the benefit of official sanction or control. They don't register, don't keep books and don't pay taxes. They operate beyond the reach of the law. They have little or no access to organized markets, credit institutions, educational or training centers or public services. Although efforts are being made by the government to bring the underground economy to the surface, the nature of this sector makes it very difficult to gather and process statistics on them.

5. Coverage

What are the current initiatives to develop SME statistics?

1. National Business Registration (NBR) Project

The NBR project aims to address the growing concern of having consolidated information on all the registered businesses in the country. Currently, no government agency has a complete record of all registered businesses since registration is being done by various agencies. It is the objective of the NBR project to integrate the information contained in the various agencies and have a single consolidated database containing basic information of all registered businesses.

The NBR project is considered a “timely” project for the country in this The NBR project is considered a “timely” project for the country in this day and age of global economy. The NBR will not only enable day and age of global economy. The NBR will not only enable Filipino entrepreneurs to find business ventures with fellow Filipinos Filipino entrepreneurs to find business ventures with fellow Filipinos but with foreign investors as well. but with foreign investors as well.

The SME Database (headed by the DTI SME-Project Management Office) aims to act as a repository (databank) of the corporate profiles of SMEs. Its objective is to serve as a tool for monitoring the assistance given by the different agencies to each SME firm. The database is also designed to identify individual companies and to track the kinds of government assistance given to each.

The interim database will enable the much-needed tracking of SMEs during the crucial first six (6) months of 2003, especially for measurement against the National SME Agenda objectives. The final database could act as a master database of all SMEs nationwide, possibly supporting other organizations outside DTI, and would allow for more complex analysis and reporting. A networked database would facilitate the encoding of data from the provinces at the source of the information. The ultimate benefit of the SMEs is the possibility of minimizing, if not eliminating the need to register numerous times with various organizations.

2. SME Database Project

Referenceshttp://www.dti.gov.ph/dti/index.php?p=532http://www.dti.gov.ph/dti/index.php?p=321http://mb.com.ph/node/346922/micro-Fajardo, Feliciano.Entrepreneurship. Philippines, 2009http://www.entrepreneur.com.ph/ideas-and-opportunities/article/how-smes-play-an-important-role-in-the-philippine-economy. Ideas and OpportunitiesBenel P. Lagua https://docs.google.com/viewer?a=v&q=cache:rOuiQTBvwIYJ:www.oecd.org/dataoecd/3/49/15004719.ppt+contribution+of+SMEs+to+Philippine+economy&hl accessed Nov. 2012