Technology Upgrading for MSMEs Under Two Administrations

Technology Upgrading for MSMEs Under Two Administrations

There is no debate to the claim that technological advancement is one of the biggest factors to economic growth. At the level of enterprises, upgrading the use of technology is believed to result in productivity gains, which improves the competitiveness of products and services that translate to increased profits.

Michael Porter, a known economist and business strategist, highlights the role of technology in saying that competition is entirely between innovative firms, and that gaining the ability to develop technological novelties in these firms results in both an increase in productivity and the ability to gain competitive advantages in international markets.

The Magna for Carta for Small Enterprises (RA 9501) defines micro, small and medium enterprises as any business activity or enterprise engaged in industry, agribusiness and/or services, whether single proprietorship, cooperative, partnership or corporation whose total assets fall under the following category:

Table 1. Enterprise category according to asset size

Enterprise Category Asset Size Employment Size
Micro Not more than Php 3 million Less than 10 employees
Small Php 3,000,001 – Php 15 million 10-99 employees
Medium Php 15,000,001 – Php 100 million 100-199 employees
Large > Php 100 million 200 or more employees

 

Another definition of MSMEs would be based on their employment size. Enterprises with less than ten employees are micro enterprises, those with 10-99 employees are considered small, and those with at least 100 employees up to 199 are medium. Large enterprises are those that have 200 or more employees.  This definition of enterprises according to size was not reflected in official government until of late. RA 9501 was promulgated in 2008 and in the 2012 Census of Philippine Business and Industry, there were only two (2) categories of enterprises: those with employees twenty and above , and those with employees below twenty . The disaggregation was done in 2013, giving the following figures: (See Figure 1 on the next page.).

Micro enterprises compose a huge majority of enterprises in the Philippines.  In 2012, 83.39% of all enterprises in the country are micro. Small enterprises follow in number at 92,025, comprising 9.74% of the total. Medium and Large enterprises are miniscule in number at 4,136 and 4,083, respectively. This distribution did not change much after six years. In 2018, according to the official data from the Philippine Statistics Authority, micro enterprises  comprise 99.52% or 998,342 out of 1,003,111 total business enterprises in the country with microenterprises dominating the largest portion of this share (88.45%) or a total of 887,272 establishments; followed by small enterprises at 106,175 establishments (10.58%); and medium enterprises comprising 4,895 establishments (0.49%) having the least share in terms of size distribution. Due to the small proportion of medium enterprises, the county’s industry structure is often characterized by a missing or hollowed middle. This firm size distribution has not changed much in the last two decades.

 

Distribution of Philippine Enterprises by Firm Size, 2012 and 2018
Figure 1. Distribution of Philippine Enterprises by Firm Size, 2012 and 2018

Source: PSA

 

Table 2. Number of Enterprises in the Philippines in 2012 and 2018

Year Micro Small Medium Large TOTAL
2012 844,760 92,025 4,136 4,083    945,004
2018 887,272 106,175 4,895 4,769 1,003,111
Total 1,732,032 198,200 9,031 8,852  
Difference 42,512 14,150 759 686 58,107

Source: PSA

 
MSMEs per Industry Sector, 2018
Figure 2. MSMEs per Industry Sector, 2018

Source: PSA

 

Forty-one per cent of all MSMEs are in Wholesale and Retail Trade, Repair of Motor Vehicles and Motorcycles. These industries comprise the biggest share in the sectoral distribution of MSMEs. Far second are those in Accommodation and Food Service Activities. There are 44,487 MSMEs in this sector. Close third are those in the Financial and Insurance Activities. At 41,657 enterprises in this sector, they contribute 12% of the total. Manufacturing enterprises constitute only 9% of all MSMEs, while those in Agriculture, Forestry and Fishing contribute a mere 1% to the total. The least number of enterprises are those in Mining and Quarrying; Electricity, Gas, Steam, and Air Conditioning Supply; and Water Supply, Sewerage, Waste Management and Remediation Activities. The number of establishments in the other sectors are shown in the table on the next page. (See Figure 2)

 
Distribution of Philippine enterprises per region, 2018
Figure 3. Distribution of Philippine enterprises per region, 2018

Source: PSA

In terms of geographical distribution, NCR houses the greatest number of MSMEs with a total of 203,312- that is 20.36% enterprises situated in the region. Region 4A-CALABARZON meanwhile is home to 148,196 (14.84%) business establishments; followed by Region 3 (Central Luzon) with 116,073 (11.63%); Region 7 (Central Visayas) with 70,395 (7.05%); and Region 6 (Western Visayas) with 61,590 (6.17%).

The regions in Mindanao have the least number of enterprises except for Region XI. Davao Region is exceptional as it joins the comparatively more vibrant regions in the country in terms of number of enterprises. Region 4-B (MIMAROPA), Cordillera Administrative Region (CAR), CARAGA, and ARMM are more sluggish and have the least number of enterprises in the country. (See Figure 3.)

Recognizing the crucial role of technology in the development of micro, small, and medium enterprises in the country, then President Benigno Aquino III, integrated technology upgrading in his 2011-2016 MSME Development Plan. The plan aimed to address the major challenges faced by micro, small and medium enterprises.

 

2010-2016 MSME Development Plan

The high cost of doing business, lack of access to finance and market information, and low productivity and competitiveness were considered to be the main reasons why MSMEs remained stagnant. Cost of electricity in the country is among the highest in the region. The archipelagic geography and lack of interconnected transportation system ramps up the distribution cost of products and services. MSMEs are not attractive to banks as they entail higher lending risk, and the excessive documentary requirements aggravates the entrepreneurs’ already deficient access to finance. Weak technological capabilities and failure to engage in innovation and research and development activities further wanes the MSMEs productivity and competitiveness. 

To address these hurdles, the Aquino administration focused on the critical constraints to MSME growth, and vowed to improve the general business environment, enhance government support to improve access to finance, expand market access, strengthen productivity and competitiveness, and establish linkage of MSMEs with large enterprises, and forge their integration in value chain networks both local and international.

There are four (4) identified outcome portfolio in the approach. These are the following:

1) Business Environment (BE)

          • Affordable cost of doing business
          • Establishment of institutional support structures, soft and hard infrastructures, and implementation of policies for the development of start-ups and existing MSMEs
          • availability and accessibility of information

2) Access to Finance (A2F)

          • availability and accessibility of financial products, services, information, and support programs
          • low, affordable, and reasonable cost of borrowing
          • streamlined processes and requirements in acquiring loans

3) Access to Markets (A2M)

          • maintain/penetrate local and global markets
          • available and accessible market information
          • gain competitive advantage using information technology and intellectual property system

4) Productivity and Efficiency (P&E)

          • motivated and skilled workforce
          • compliant to international quality standards
          • using state-of-the- art productivity enhancing technologies

 

The SSF Project

Various projects were launched specifically targeting these outcomes. Arguably, the Shared Service Facility (SSF) project may be deemed most high-flying. In 2013, large amount of funds was earmarked for the SSF project to improve and increase the competitiveness and productivity of MSMEs through the provision of necessary machineries, tools, equipment, knowledge, and skills training.

The SSF project was implemented nationwide with an initial allocation of Php 770M in the 2013 General Appropriations Act (GAA); Php 700M of which were intended for the procurement of equipment, while the remaining Php 70M was allocated for the implementation of the project.

The project is assisted and supported by its partners termed as cooperators which refer to any juridical entity such as, but not limited to, non-government organizations, people’s organizations, cooperatives, industry/ trade/ business associations, local government units (LGU’s), state universities/ colleges/ technical vocational schools, and other similar government and training institutions.

The beneficiaries of the SSF project, meanwhile, are the users of the machines, tools and equipment, which predominantly comprise of cooperatives, MSME groups or associations, individual MSME and entrepreneurs, students, trainees, teachers, and researchers.

The SSF Project seeks to attain one or more of the following objectives for MSMEs:

    • Increase productivity;
    • Accelerate competitiveness through the provision of energy efficient technologies and sophisticated equipment;
    • Graduation to the next level, access wider market share, and be integrated in the global supply chain;
    • Convergence where government resources are pooled and integrated; and,
    • Address the gap and bottlenecks in the value chain of priority industry clusters.

 

The Project’s Key Performance Indicators Include:

    • Number of MSMEs assisted;
    • Number of jobs generated;
    • Sales generated; and
    • Investments generated.

 

Overall, the Project had a total allocation of Php 1,019,613,517.13 and produced a sum of 2007 shared service facilities nationwide under the Aquino administration.

When President Rodrigo Duterte assumed the top government post in the second half of 2016, a clearer vision for the sector was put forward. This was articulated in the 2017-2022 MSME Development Plan.

The 2017-2022 MSME Development Plan

With the vision that by 2022, “More globally competitive MSMEs are regionally integrated, resilient, sustainable, and innovative thereby performing as key drivers of inclusive Philippine economic growth;” three (3) focus areas were identified to improve Business Environment, Business Capacity, and Business Opportunities in the country.

FOCUS AREAS

1. Business Environment

            • Improved Business Climate. Creating an enabling environment that will encourage start-up, development, and sustainability of MSMEs through a standardized, harmonized, simplified MSME related rules and regulations at all levels that calls for easier and more efficient transactions, processes and procedures with regard to MSME related activities.
            • Access to Finance. Making financial services and support programs available to MSMEs through capacitating financial institutions and cooperatives to provide business development assistance to MSMEs, equipping MSMEs with financial knowledge and information through the provision of trainings, simplifying loan requirements and processes for the benefit of the sector among others.

2 .Business Capacity

          • Enhanced Management and Labor Capacities. Strengthening MSMEs’ human resource capacity through mentoring, group and online training. This also includes supporting advocacies and education campaigns on labor related laws/policies.
          • Access to Technology and Innovation. Provision of technologies that are sustainable, affordable, cost effective, and accessible to MSMEs across the region. This also includes the strengthening of the linkages between MSMEs and large (big brother) corporations, and the development of more inclusive business models and social enterprises.

3. Business Opportunities

          • Access to Markets. Providing MSMEs access to local and global markets by strengthening value- and supply- chain linkages, providing information and contacts on domestic and export market available to MSMEs among others.

 

Although a new nomenclature was put forth, there is no striking difference between the two administrations’ plans. In fact, President Duterte did not actually deviate from his predecessor’s Four Pillars for MSME Development: Business Environment, Access to Finance, Access to Markets, and Productivity and Efficiency. It is thus expected that President Duterte carried on with the technology upgrading for micro, small, and medium enterprises and the consequent retention of SSF Project during his term.  Among the three focus areas in the new plan, the SSF Project could be directly linked to Business Capacity, through provision of technology, and indirectly to Business Opportunity through product improvement that allows MSMEs to access markets, especially the more competitive and stringent export market.

President Duterte’s Philippine Development Plan (PDP) for the years 2017 to 2022 aims to expand economic opportunities in the sector of industry and services, and increase the access of MSMEs in these opportunities. It aims to make the industry and services sectors globally competitive and increase its presence in the global market. To do so, domestic suppliers such as MSMEs are encouraged to benefit from existing free trade and other cooperative agreements.

The Key strategies spelled out in the plan are the following:

    • Upgrading industries and strengthening their linkages to domestic and global value chains to develop globally competitive industries and services.
    • Improving backbone services to facilitate movement of people, goods, services, information, and ideas.
    • Investing in logistics and infrastructures for boost in competitiveness, improved connectivity, and less costings.
    • Improving access to production networks by supporting linkages between MSMEs and large corporations.
    • Streamlining and simplifying loan processes for MSMEs, assessing implementation of and compliance with relevant laws (Microfinance NGOs Act & Credit Surety Fund Cooperative Act), and determining if and where legislation is needed.
    • Increasing access to technology by expanding the Small Enterprise Technology Upgrading Program (SETUP) and SSF to areas where poor citizens reside.
    • Upgrading of existing services for MSMEs to broaden access to innovative, appropriate, and cost-effective technologies.
    • Implementing MSME Development Plan particularly the productivity and efficiency portfolio.

 

The SSF Project is very much aligned to the strategies enumerated in the PDP. It supports industry upgrading, access to technology, and broadened access to innovative, appropriate and cost-effective technologies. 

It is also worth noting that global competitiveness was specifically tied to technology improvements as spelled out in the Philippine Inclusive Innovation Industrial Strategy or i3S. The strategy adopts liberal views of the market with innovation as the central component of the country’s strategic policies and programs. It aims to capacitate MSMEs by addressing binding constraints to competitiveness such as high cost of power, high domestic shipping cost, inadequate infrastructure, and complex government processes and procedures affecting business operations. It also looks at human resource development and skills training programs, green growth, and investment promotion that would bring in new technologies.

PRRD gave the SSF project a little more than the previous administration: Php 1,439,130,764.07. This budget allocation established 1,274 facilities all over the country. The charts below show the SSF project figures under the term of President Aquino and under the term of President Duterte.

It could be noticed that from July to December 2016, 198 SSFs were constructed. This may be a spill-over from the previous administration. The following year, the number drastically dropped to 29. It is laudable however that SSF projects thrived even during the lockdowns. In fact, the highest number of established SSFs were listed in 2021. It’s one testimony of enhanced government support during the time of pandemic.

 Number of Established SSFs, 2013-2022
Figure 4. Number of Established SSFs, 2013-2022

Source: DTI

 

Although PNoy only had four years to implement the SSF Project and he only allocated about Php 1B for it, a total of 2007 SSFs were established during his term. This is a boon or a bane, as we would later see how this has translated into the amount allocated per project. This of course has implications on the kinds of equipment purchased for each facility. It would be edifying to know exactly what machineries are being purchased in the facilities to assess the level of technology that are being given to MSMEs. This is relevant since the MSME Development Plans under both the Aquino and Duterte administrations have been harping about innovation, productivity improvements, cost-efficiency, competitiveness, and gearing up for the Fourth Industrial Revolution. 

Across all regions, more SSFs were built during PNoy’s term except for four (4) regions. These are BARMM, NCR, and Western and Eastern Visayas.  Region II had the highest number of established SSFs overall, followed by Regions III and I. Regions IV-B, BARMM and NCR had the least number of established SSFs. It is surprising for NCR to have the least number of established SSFs considering that 20% of all SSFs in the country are situated in the region. It is also worth noting that BARMM did not benefit from the SSF Project during PNoy’s term. All SSFs established in the region were during PRRD’s term, which is a redemption of what may be seen as neglect of the previous administration, or plain lack of interest or demand for the project from beneficiaries and/or cooperators in the area. 

Total Number of Established SSFs per Region
Figure 5. Total Number of Established SSFs per Region

The Php 1B budget for MSME technology upgrading under President Aquino benefited all regions except BARMM. Sixty-two percent (62%) of this went to the eight regions in Luzon, with CALABARZON (Region IV-A) enjoying the biggest slice amounting to around ~Php 147.5 million. Regions I and III also had huge chunk of the budget amounting to ~Php 125.8 million and ~Php 117.7 million, respectively.  Among all the regions in Luzon, National Capital Region and MIMAROPA had the tiniest share of only ~Php 11.5 million and Php 32.4 million, respectively.

The three regions in Visayas also had a miniscule share of 8.6% of the total budget for the SSF Project. The regions in Mindanao collectively got 29.3% of the total SSF Budget under PNoy or a total of ~Php 298.5 million.  Of this amount, Regions X and XIII got a large allotment of ~Php 71.4 million and ~Php 64 milion, respectively.  (See Figure 6.)

Total Amount Disbursed, 2013 - June 2016, Php
Figure 6. Total Amount Disbursed, 2013 – June 2016, Php

Source: DTI

 

  Total Amount Disbursed, July 2016 – June 2022, Php

Figure 7. Total Amount Disbursed, July 2016 – June 2022, Php

Source: DTI

 

It may be voiced that the succeeding term made up for the limitation of the previous administration by cascading more funds to areas that did not get much in the past. During PRRD’s term, regions in the Visayas (VI, VII, and VIII) gained the largest support from the SSF Project. Collectively,  Eastern, Central, and Western Visayas received Php 366,735,104.62. with a ~Php 153.2 million fund. NCR trailed behind with ~Php 135.3 million allocation. These three regions along with NCR received ~Php 502 million from SSF funds, which is equivalent to 35% of all funds allocated for the project during the term of President Duterte.  Other regions remained sluggish like Region IV-B, and, ironically, some regions in Mindanao like BARMM, CARAGA (XIII) and SOCCSKSARGEN (XII) – which the Duterte Administration vowed to prioritize. (See Figure 7.)

  

Average Amount Disbursed per SSF
Figure 8. Average Amount Disbursed per SSF

Source: DTI

Figure 8 above depicts a comparison of the average amount disbursed per   SSF under the two administrations. The chart retells a totally new story in terms of   the cost of the established SSF per region. By far, the SSFs in the National Capital Region are more expensive than the facilities established in other regions. On average, the cost of SSFs in NCR was about Php 1.6 million during PNoy’s term. There was no deviation in the distribution of SSF fund, on average, during the term of President Duterte. It was actually amplified to an average  of about Php 9.2 million per SSF in NCR.

It is notable that generally, PRRD had been more generous in giving funds per SSF than his predecessor.   If the cost of SSF would be used as proxy for the level of technology provided, it is a  delightful improvement.

Total Amount Disbursed, 2013-2022, Php
Figure 8. Total Amount Disbursed, 2013-2022, Php

Overall, the Philippine government allocated Php 2,458,744,281.20 for the SSF Project.  The project was implemented for nine years. It started at the middle of the term of then President Aquino, and was continued on until the end of the term of his successor, President Duterte.

All the regions in the country benefitted from the project, though in varying degrees. Figure 8 illustrate the total SSF fund received by each region in the country from inception of the project in 2013 until June 2022

 

 

 

 

Conclusion

It may be said that if economic development could be attributed to a single factor, that would be the level of technology adopted by  the enterprises in a country.  Technology improves productivity: it decreases the amount of inputs required to produce an output, and makes a product or service more competitive in the market- by lowering cost and improving product quality. 

In the nine years that the SSF Project was in place,  the government has spent Php  2,458,744,281.20  for the purchase of equipment for micro, small , and medium enterprises in the hope of improving their productivity and competitiveness.  The project boasts of thousands of enterprises benefiting from the use of purchased equipment in the shared service facilities established.  This is laudable although it would be valuable to know how the facilities have actually benefitted MSMEs especially in terms of improving the competitiveness of their products and services, as  publicly aspired  and  recorded in the development plans of the two administrations that implemented the project.

Crafting of development plans diminish in merit by changing nomenclatures when crucial numbers are not  secured. Measures of budget allocation, how these are distributed , and how many were established using these funds are preliminary  information. There would no doubt be much anticipation in knowing project outcomes that  matter in assessing whether the project has been successful which could be provided no less by the micro, small, and medium, enterprises themselves.   Measures of productivity gains , among other desired outcomes  are necessary in identifying how else the project could be improved.

 

REFERENCES

2018 Census of Philippine Business and Industry: Economy-Wide. Philippine Statistics Authority. (2020, November 9). Retrieved June 13, 2022, from https://psa.gov.ph/content/2018-census-philippine-business-and-industry-economy-wide

Department of Trade and Industry Historical Data on the SSF Project 2013-2022.

Department of Trade and Industry. (2018, February 20). DTI policy brief 2017-05 – Philippine Inclusive Innovation Industrial Strategy. Board of Investments. Retrieved June 13, 2022, from https://boi.gov.ph/sdm_downloads/dti-policy-brief-2017-05-philippine-inclusive-innovation-industrial-strategy/

Medalla, E. M., del Prado, F., Mantaring, M. C., & Maddawin, A. B. (2016). (rep.). Preliminary Assessment of the Shared Service Facilities. Philippine Institute for Development Studies. Retrieved June 8, 2022, from https://www.pids.gov.ph/publication/discussion-papers/preliminary-assessment-of-the-shared-service-facilities.

MSMED Council. (n.d.). Micro, Small and Medium Enterprise Development Plan for 2011 to 2016. Department of Trade and Industry. Retrieved June 8, 2022, from https://www.dti.gov.ph/wp-content/uploads/images/NegosyoCenter/2012_DTI_MSMEDPlan_2011-2016.pdf

MSMED Council. (n.d.). Micro, Small and Medium Enterprise Development Plan 2017 to 2022. Department of Trade and Industry. Retrieved June 8, 2022, from https://dtiwebfiles.s3-ap-southeast-1.amazonaws.com/e-library/Growing+a+Business/MSME+Development+Plan+2017-2022.pdf

Number of Establishments by Employment Grouping and by Region: 2012 LE. Philippine Statistics Authority. (2013, December 18). Retrieved June 13, 2022, from https://psa.gov.ph/sites/default/files/attachments/itsd/specialrelease/2012ULE_Table3.pdf

Porter, M. E. (1990). The competitive advantage of Nations. Free Press.

Sickles, R. C. and Zelenyuk, V. (2019). Measurement of Productivity and Efficiency Theory and Practice. Cambridge University Press.

Younus, A. M. (2021, October). Technological Advancement and economic growth for the business sector. Academic Journal of Digital Economics and Stability. Retrieved June 7, 2022, from https://economics.academicjournal.io/index.php/economics/article/view/345

 

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