Unit II - Enterprise Development in Philippine Setting

a. Enterprise Development in the Philippine Setting

Importance of Enterprises in an Economy

The dynamism of enterprises in an economy is vital to the well-being of the

population. In a market-based system, enterprises not only form the basis of the
economy and contribute to the majority of value-added in production, but also provide
the main sources of employment for workers. Yet, despite the voluminous literature
on labor markets and employment, relatively little is known on the factors that
contribute to the dynamism of enterprises.

One may think an MSME are 'small-time' businesses such as sari-sari stores and the
like. But this may also include manufacturing, trading, import-export, retailing, rental
and service companies, among others. In essence, MSMEs are created by anyone with
the initiative and drive to start a business.

According to the Asian Development Bank (ADB), MSMEs are the backbone of
economies in Asia and are considered its driving force. In the Philippines, MSMEs
comprise around 99 percent of businesses in the country.

MSMEs play a key role in developing the Philippine economy. They create job
opportunities. The DTI said these businesses alone have managed to generate over 5
million jobs or 62.4 percent of the country's employment.

As a result, many Filipinos have a regular-paying job where they can earn a living,
give them purchasing power, and this in turn contributes to the economy. However,
the drawback is that they do not offer higher wages compared to corporations, which
does not give them the chance to hire skilled labor. This in turn, helps reduce poverty.

Advantages of MSMEs

Despite being 'dwarfed' by big businesses, MSMEs enjoy certain advantages over the
latter. Because of their small business structure, they are not burdened by red tape or
other established conventions. They are more flexible in terms of creativity as
opposed to the rigid rules and structures of corporations. According to the Asian
Institute of Management, most MSMEs welcome innovation through the introduction
of products and services, which they think the market will need rather than determine
what they want. This is also what gives MSMEs their staying power or their ability to
last long in the business.

Not only do they spread wealth in their communities, but they have also established
their mark in the world. Despite being small in scale and local in terms of scope of
operation, there are MSMEs that are capable of serving customers around the world,
thanks in part to technology. If anything, they help promote the Philippines through
the goods and services they provide.

It has always been the DTI’s priority to help future and budding entrepreneurs in
visualizing and expanding their business, respectively. We are there, every step of the
way, helping owners of micro-, small-, and medium-sized enterprises (MSMEs) start
their trade through the conceptualization phase and walk them through the registration
process.

Disadvantages of MSMEs

Red-tape - something that takes far longer than it needs to and has more formalities, paperwork, or
regulations than is necessary. For example, getting licenses for the operation of the business.

Labour issues -The majority of SMEs frequently deal with labor concerns, and in the new normal,
the ongoing migrant crisis has emerged as one of the most challenging regions for industries to
operate in such epidemic times.

Lack of financial expertise - Entrepreneurs may not be able to make critical business decisions
about MSME loans if they lack solid financial expertise. If you lack financial knowledge, you
might make poor decisions that hurt your company.
This also includes the following:
 Lack of Marketing
 Lack of Research knowledge

b. Nature and Types of MSMEs in the Philippine

What is enterprise?

3 Essential Meaning of enterprise by Merriam - Webster

 1:a project or undertaking that is especially difficult, complicated, or risky

 2: a unit of economic organization or activity especially : a business organization
 3: the ability or desire to do dangerous or difficult things or to solve problems in
new ways

Meaning of Enterprise:
 Organization or Enterprise means to plan a business, to start it and run it.
 It means to bring the factors of production together, assign each its proper task,
and pay them remuneration when the work is done.
 It implies not only running of a business, but also shouldering the loss, if any.
 The man who undertakes all this work is called an organizer, or, more commonly,
an entrepreneur.
 Organizing and risk-taking are the two main functions of the entrepreneur.

Difference Between Enterprise and Company

There are a few points to address when pointing out the differences between an
enterprise and a company, including:

 A company‘s main priority is to engage in economic activity to earn profits for

the shareholders. In many instances, an enterprise may not be as formal.

 There are community and educational enterprises that do not fall into the
category as a company because their primary goal does not relate to generating
profits.

 The term enterprise can technically be used to label a company. However, it is

more commonly used to describe the sense of growth and action, as in the case
of a private enterprise.

 Enterprise has become greatly associated with the IT industry, with

terminology like “enterprise solutions” and “enterprise class” often being
used.
  The acronym SME is a clear indication that the enterprise is associated with
ventures.

What is MSMEs?

MSMEs or micro, small and medium enterprises are businesses that differ from
corporations or conglomerates yet are a major cog in the Philippine economy.

One must also bear in mind three words that characterize MSMEs single, small and
local.

 SMEs are often single proprietorship and sometimes the owner may also be
the sole employee. It may also apply to producing one product or providing
only one kind of service.

 'Small' in the context of MSMEs in the Philippine setting refer to businesses

whose workforce number between 10 and 199 and their assets range from P3
million to P10 million.

 MSMEs are typically local. MSMEs only operate or serve clients within their
locale and smaller businesses tend to operate from one's own home or they do
not have a formal office building or establishment to run their operations.

REPUBLIC ACT NO. 6977 or also known as the “Magna Carta for Micro, Small
and Medium Enterprises (MSMEs)”.

This act aim to promote, develop and assist Small and Medium Scale Enterprises
through the creation of a Small and Medium Enterprise Development (SMED)
Council, and the Rationalization of Government Assistance Programs and Agencies
concerned with the development of Small and Medium Scale Enterprises, and for
other purposes.

It recognizes that MSMEs have the potential for more employment generation and
economic growth and therefore can help provide a self-sufficient industrial foundation
for the country, it is hereby declared the policy of the State to promote, support,
strengthen and encourage the growth and development of MSMEs in all productive
sectors of the economy particularly rural/agri-based enterprises.

Current Profile of MSME STATISTICS in the Philippine by 2020

Number of Establishments

The 2020 List of Establishments of the Philippine Statistics Authority (PSA) recorded
a total of 957,620 business enterprises operating in the country. Of these, 952,969
(99.51%) are MSMEs and 4,651 (0.49%) are large enterprises. Micro enterprises
constitute 88.77% (850,127) of total MSME establishments, followed by small
enterprises at 10.25% (98,126) and medium enterprises at 0.49% (4,716).

Geographical Spread of MSMEs

Majority of the MSMEs can be found in the National Capital Region (NCR) with
201,123 (21.10%) business establishments, Region 4-A (CALABARZON) with
139,363 (14.62%), Region 3 (Central Luzon) with 111,262 (11.68%), Region 7
(Central Visayas) with 65,682 (6.89%), and Region 6 (Western Visayas) with 57,469
(6.03%). These top five (5) locations accounted for about 60.33% of the total number
of MSME establishments in the country. Regional concentration of MSMEs is largely
associated with economic activity and population size.

Employment

Together, these MSMEs generated a total of 5,380,815 jobs or 62.66% of the

country’s total employment. The micro enterprises produced the biggest share
(29.38%) closely followed by small enterprises (25.78%) while medium enterprises
were far behind at 7.50%. Meanwhile, large enterprises generated a total of 3,206,011
jobs or 37.34% of the country’s overall employment.

Sales and Census Value-Added

In terms of value added, the MSME sector contributed 35.7% of the total with
manufacturing contributing the largest share of 6.87%. Wholesale and retail trade and
repair contributed 6.58% followed by financial intermediation with a share of 6%.

Within the sector, small enterprises accounted for the largest share of 20.5%. Medium
enterprises followed with a share of 10.3% while micro enterprises registered a share
of 4.9%. Among small enterprises, wholesale and retail trade and repair contributed
the most with a share of 4.07% followed by manufacturing with a share of 3.82%
while financial intermediation was next with a share of 3.35%.

For medium enterprises, manufacturing accounted for the biggest share of 2.77%
followed by electricity, gas and water with a share of 1.92% and financial
intermediation with 1.87%. For micro enterprises, wholesale and retail trade and
repair represented the largest contribution of 1.73%.

Exports Contribution of MSMEs

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.

List of industries or businesses under MSMEs

Sectoral Distribution

The top five (5) industry sectors according to the number of MSMEs in 2020 were: (1)
Wholesale and Retail Trade; Repair of Motor Vehicles and Motorcycles (445,386); (2)
Accommodation and Food Service Activities (134,046); (3) Manufacturing (110,916);
(4) Other Service Activities (62,376); and (5) Financial and Insurance Activities
(45,558). These industries accounted for about 83.77% of the total number of MSME
establishments.

To this end, the State shall recognize the specific needs of the MSMEs and shall
undertake to promote entrepreneurship, support entrepreneurs, encourage the
establishment of MSMEs and ensure their continuing viability and growth and
thereby attain countryside industrialization by:

“a) intensifying and expanding programs for training in entrepreneurship and for
skills development for labor;

“b) facilitating their access to sources of funds;

“c) assuring to them access to a fair share of government contracts and related
incentives and preferences;

“d) complementing and supplementing financing programs for MSMEs and doing
away with stringent and burdensome collateral requirements that small entrepreneurs
invariably find extreme difficulty complying with;

“e) instituting safeguards for the protection and stability of the credit delivery system;

“f) raising government efficiency and effectiveness in providing assistance to MSMEs

throughout the country, at the least cost;

“g) promoting linkages between large and small enterprises, and by encouraging the
establishment of common service facilities;

“h) making the private sector a partner in the task of building up MSMEs through the
promotion and participation of private voluntary organizations, viable industry
associations, and cooperatives; and

“i) assuring a balanced and sustainable development through the establishment of a

feedback and evaluation mechanism that will monitor the economic contributions as
well as bottlenecks and environmental effects of the development of MSMEs.”

This act states that MSMEs shall be defined as any business activity or enterprise
engaged in industry, agribusiness and/or 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, must have value falling under the following
categories:

micro : not more than P3,000,000

small : P3,000,001 – P15,000,000
medium : P15,000,001 – P100,000,000

“The above definitions shall be subject to review and adjustment by the Micro, Small
and Medium Enterprises Development (MSMED) Council under Section 6 of this Act
or upon recommendation of sectoral organizations concerned, taking into account
inflation and other economic indicators. The Council may use other variables such as
number of employees, equity capital and assets size.

“The Council shall ensure that notwithstanding the plans and programs set for
MSMEs as a whole, there shall be set and implemented other plans and programs
varied and distinct from each other, according to the specific needs of each sector,
encouraging MSMEs to graduate from one category to the next or even higher
category.”
In order to be qualified for assistance, counseling, incentives and promotion
under this Act, businesses falling under the above definition must be:

“a) duly registered with the appropriate agencies as presently provided by law:
Provided, That in the case of micro enterprises as defined herein, registration with the
office of the municipal or city treasurer shall be deemed sufficient compliance with
this requirement;

“b) one hundred percent (100%) owned, capitalized by Filipino citizens, whether
single proprietorship or partnership. If the enterprise is a juridical entity, at least sixty
percent (60%) of its capital or outstanding stocks must be owned by Filipino citizens;

“c) a business activity within the major sectors of the economy, namely: industry,
trade, services, including the practice of one’s profession, the operation of
tourism-related establishments, and agri-business, which for purposes of this Act
refers to any business activity involving the manufacturing, processing, and/or
production of agricultural produce; and

“d) it must not be a branch, subsidiary or division of a large scale enterprise.

“However, this requirement shall not preclude MSMEs from accepting subcontracts
and entering into franchise partnership with large enterprises or from joining in
cooperative activities with other MSMEs.

“Programs of the Small Business Corporation (SB Corporation) as provided in

subsequent provisions of this Act shall be exclusively delivered and directed to
bonafide MSMEs.

“Any MSME, its directors, officers or agents, found to have committed fraud or
misrepresentation for the purpose of availing the benefits under this Act shall be
immediately disqualified as a beneficiary, without prejudice to any administrative,
criminal or civil liability under existing laws.

“Eligible MSMEs shall be entitled to a share of at least ten percent (10%) of total
procurement value of goods and services supplied to the Government, its bureaus,
offices and agencies annually.

“The Department of Budget and Management shall monitor the compliance of

government agencies on the required procurement for MSMEs and submit its report to
the MSMED Council on a semestral basis and to the Congress of the Philippines,
through its appropriate committees on a yearly basis.”

To set the pace for MSME development, the State shall be guided by the
following principles:

“(a) Minimal set of rules and simplification of procedures and requirements. –

All government agencies having to do with small enterprises shall pursue stability of
rules and to encourage entrepreneurial spirit among the citizenry. The agencies shall
see to it that procedural rules and requirements, within their respective offices in
coordination with other agencies, are minimized in the act of registration, availment
of financing and accessing other government services and assistance.

“(b) Role of the private sector. – In order to hasten growth and expansion of small
and medium enterprises, the private sector throughout the country shall be encouraged
to assist in the effective implementation of this Act by participating in government
programs for small and medium enterprises strictly in accordance with the law, and
consistent with the attainment of the purposes hereof. To encourage private sector
participation, the Council, in consultation with the concerned sector, may recommend
simplified procedure and localized incentives to small enterprises. The Government
shall encourage the organization and establishment of small and medium enterprise
industry associations at the local and regional levels preferably unified under a
national federation/association.

“(c) Coordination of government efforts. Government efforts shall be coordinated

to achieve coherence in objectives. All appropriate offices, particularly those under
the Departments of Trade and Industry, Finance, Budget and Management,
Agriculture, Agrarian Reform, Environment and Natural Resources, Labor and
Employment, Transportation and Communications, Public Works and Highways,
Science and Technology, Interior and Local Government and Tourism as well as the
National Economic and Development Authority, Philippine Information Agency and
the Bangko Sentral ng Pilipinas, through their national, regional and provincial offices
shall, to the best of their efforts and in coordination with local government units,
provide the necessary support and assistance to MSMEs.”

“(d) Decentralization. – The State shall accelerate the decentralization process by

establishing regional and provincial offices in order to enhance and attain greater
efficiency in the provision of services to the countryside and the implementation of
this Act, in coordination with local government units. To this end, the government
agencies shall effect a substantial delegation of authority to their regional and
provincial offices to make decisions, particularly in the registration of beneficiaries of
this law, qualification for availment of benefits, accreditation of private voluntary
organizations, industry associations and cooperatives, and to resolve complaints for
violation of applicable laws.”

And it is stated also in this act that the President shall approve a six-year micro, small
and medium enterprises development plan prepared by the Department of Trade and
Industry (DTI) which shall form part of the Medium Term Philippine Development
Plan (MTPDP). It shall be formulated in consultation with the private sector, validated
and updated semestrally. Such plan shall include a component on a micro credit
financing scheme.”

7Ms Way of Uplifting MSMEs

As part of President Duterte’s administration goal of ensuring inclusive growth and

addressing income inequality, there is a need to empower those at the bottom of the
pyramid and marginalized sectors with the right mindset and know–how to be able to
move up in life. DTI has come up with 7Ms to help MSMEs set-up a business and be
smarter entrepreneurs. These can help in making a difference in the market, while
contributing to a larger cause of sustaining the Filipino entrepreneurial revolution.

M1: Mindset
The right and positive entrepreneurial attitude that will carry the MSME through a
vibrant entrepreneurial journey. Initiatives that will infuse an entrepreneurial mindset
that is success- and innovation-driven, collaborative, and proactive will be pursued.

M2: Mastery
The mastery of know-how and how-to’s of entrepreneurship – from setting up a
business, basic rules of spotting market opportunities, finding the right product
positioning and differentiation, product and market development, basic busines
finance and preparation in developing a system for continuous innovation – will be
provided.

M3: Mentoring
Continuous business guidance in partnership with the private sector will be afforded.
Experience coaching and mentoring of industry experts and large corporations on
different aspects of business operations will be engaged.

M4: Money
Funding whether through microfinance or from alternative sources will be explored,
to help out in financing business requirements.

M5: Machine
MSMEs will be equipped not only with the must-have knowledge on equipment and
right tool to ensure quality production. Through these, MSMEs can level up
production and increase productivity.

M6: Market
Assistance in promoting products through trade fairs in major malls and
internationally recognized exhibits will be provided. Linking MSMEs with big
companies or to the government to supply their requirements will be sought.
M7: Models
New and innovative business ideas will be developed and provided to MSMEs to help
them get into business. MSMEs need to have ties with bigger businesses to create
synergies which are essential in matching and innovating products and services.

C. Some of the Programs under the MSME Development Plan 2017-2022

Vision

“A more globally competitive, regionally integrated, nationally resilient, highly

sustainable and productive, innovative and dynamic MSME Sector performing as one
of the most effective drivers of inclusive Philippine economic growth”

More globally competitive MSMEs that are regionally integrated, resilient,

sustainable, and innovative thereby performing as key drivers of inclusive Philippine
economic growth

To achieve this, the MSME Development Plan 2017-2022 has three focus areas with
corresponding goals of emphasis:

Focus Areas Goals

Business Environment Business Climate
Access to Finance
Business Capacity Human Capital Development
Technology and Innovation
Business Opportunities Access to Market

Business Climate
• simplify, standardize, and harmonize MSME-related rules and regulations at the
local and national levels
• encourage MSMEs to tap the opportunities in macroeconomic policy, infrastructure
development, and trade deals

 Ang Negosyo Center Program ay responsable para sa paglulunsad ng

kadalian sa paggawa ng negosyo at mapadali ang pag-access sa mga serbisyo
para sa Micro, Small, at Medium Enterprises (MSMEs). Ang Batas sa
Republika Blg. 10644 kung hindi man kilala bilang "Go Negosyo Act,"
naglalayong palakasin ang mga MSME upang lumikha ng mas maraming
oportunidad sa trabaho sa bansa.

Access to Finance
• streamlining and simplifying loan processes for MSMEs
• incentivizing financial institutions to reach MSMEs
• equipping MSMEs with knowledge and enticements to avail of formal financial
services

 Pondo sa Pagbabago at Pag-asenso ay isang inisiyatibo ng pamahalaan

upang matulungan ang mga pinaka-maliliit na negosyante sa buong bansa sa
pamamagitan ng pagbibigay ng alternatibong pagkukuhanan ng kapital na
mabilis at may murang pautang na mayroon lamang 2.5% na interes kada
buwan upang kanilang mapalago at mapalaki ang kanilang negosyo.

Human Capital Development

• expand and strengthen the human resources capacity of MSMEs through mentoring,
group training, and online training

 KAPATID MENTOR ME - ang programang ito ng gobyerno ay nagbibigay

sa parehong established and new business owners sa Pilipinas ng
kinakailangang kaalaman, payo , kasanayan, at koneksyon upang patakbo at
mapalago ang isang negosyo.

Access to Technology and Innovation

• support linkages between MSMEs and large corporations
• develop more inclusive businesses and social enterprises
• establish feasible domestic economic zones for MSMEs
• provide affordable, cost effective, and accessible innovative technologies

 Shared Service Facilities (SSF) Project ay isang pangunahing programa ng

Kagawaran ng Kalakalan at Industriya na naglalayong mapabuti ang
pagiging produktibo at kahusayan ng maliliit na negosyo sa pamamagitan ng
pag-access sa mas mahusay na teknolohiya.

 Small Enterprise Technology Upgrading Program (SETUP) - isang

diskarte/strategy sa buong bansa na naghihikayat at tumutulong sa mga
micro, small, at medium na negosyo (MSMEs) na gamitin ang mga
makabagong teknolohikal upang mapabuti ang kanilang mga produkto,
serbisyo, pagpapatakbo at dagdagan ang kanilang pagiging produktibo at
pagiging mapagkumpitensya.

Access to Market
• strengthen value and supplychain linkages
• provide timely, accurate, and inexpensive market matching available for MSMEs

 Go Lokal! Tinutulungan din ng DTI ang MSME's sa pamamagitan ng

 kanilang programa na Go Lokal! Ito ang nagdadala ng mga produktong lokal
sa mga partner stores at sa mga retail establishments, katulad ng mga mall at
retail operator.

 One Town One Product (OTOP) ay isang pampromosyong programa ng

gobyerno na nilalayon ng OTOP na itaguyod ang mga gawang Pinoy na
kalakal at produkto ng mga bayan, lungsod, at rehiyon, at magbigay ng
pondo para sa maliliit na negosyo. Pinangangasiwaan ito ng Department of
Budget and Management (DBM).
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