Small-scale business enterprises in the Philippines: survey and empirical analysis.(MANUSCRIPTS)

ABSTRACT

This paper is a two-part study of small-scale business enterprises in the Philippines: survey and empirical analysis, both of which are combined in an attempt to understand what determines entrepreneurial motivations and success in the Philippines. The survey was conducted in order to study entrepreneurship development and motivations in the Philippines and also to understand the challenges and sacrifices faced by Filipino entrepreneurs. In particular, this survey is quite comprehensive in scope and comprised 202 questions. Aside from data on the general characteristics of the business enterprise and the entrepreneur, the survey also asks questions about important issues in the study of entrepreneurship such as entrepreneurial intensity, sacrifice, motivation, business plans, the business' effect on the entrepreneur's quality of life, the entrepreneur's personal beliefs and attitudes, and difficulties and problems that the entrepreneur encountered at different stages of operating the business enterprise. This study also presents an empirical analysis of the determinants of success by Filipino small businesses. This analysis made use of the survey data and is based on the estimation of a regression model using Ordinary Least Squares technique.

INTRODUCTION

Since the 1990s, there has been a resurgence of interest on the role of small-scaled business enterprises or small and medium enterprises (both will be referred to as "SMEs" hereafter) in national and international economic and social development. This is consistent with the overall shift of development strategies in many countries toward a more decentralized, even localized, approach. As such, many scholars, practitioners, and institutions involved in economic development have begun to recognize the important roles that smaller-scale business entities play in the economy and society. More and more people are becoming convinced that these entities can be a very effective means of achieving, not only economic progress, but social goals (e.g., a more equal income and a greater appreciation for diversity in gender and race) as well. All of these suggest a greater need to increase our understanding of the nature and capabilities of family businesses and SMEs and the kinds of policies and incentive systems that would be appropriate, necessary, and effective in encouraging and strengthening them.

REVIEW OF ISSUES AND RELATED STUDIES

Like those in other countries, SMEs in the Philippines make significant contributions to the overall economy and the country's pursuit of economic development. Data show Filipino SMEs to make up more than 99% of all businesses in the country, provide more than two-thirds of the country's employment, and is responsible for almost one-third of the country's income (Philippine Department of Trade and Industry, 2003). Given their economic importance (others also highlight their social significance), Filipino SMEs are an interesting subject of study. Consequently, one would expect to find numerous studies on them. This, however, is not the case, most probably because of a number of issues that complicate their study.

One of these issues has to do with the different perspectives on different aspects related to SMEs. Depending on which perspective the researcher uses as the primary source of insight and information, one gets a very different picture. In the study of Filipino SMEs, at least 3 different perspectives could be identified: that of policymakers, SME owners, academician and scholars.

Policymakers' Perspective

In Philippines, government support to SME looks very good on paper. Specific legislation (Republic Act 6977: Magna Carta for Small Enterprises, signed in 1991; amended as Republic Act 8289 in 1996), institutions (such at the Department of Trade and Industry/Bureau of Small and Medium Business Development, University of the Philippines-Institute for Small-Scale Industries, and institutions that provide credit or credit guarantee to SMEs); publications give the impression that the government pays careful attention and takes sufficient action to encourage SMEs. That the government would purposely choose to give such impression is not surprising for a number of reasons.

First, there is a "bandwagon effect". Since other countries in the region and elsewhere have similar programs (again, at least on paper), the Philippines or for that matter any other country would look very bad should it choose not to have an SME program.

Second, because it is difficult to deny how important SMEs are as an effective means to achieve both economic and social goals, no government would choose to appear unsupportive of SMEs.

Third, the government might also have a tendency to "maximize external support", including those provided by international organizations to support SME development. To the extent that these programs allow the government access to resources (often, financial and technical) whose use could not be perfectly monitored, acting in a way to attract these resources give the impression of being supportive of SMEs.

In reality, however, policymakers' intention to assist SMEs tends to be less than genuine. "Conflict of interest" among government officials gets in the way. Since a number of policymakers are linked to large enterprises by ownership or production relation (either as supplier or customer), one would expect policymakers to use their political influence to channel support toward their own commercial interests and away from SMEs.

SME Owners' Perspective

During the study period, I came across three prior surveys of Filipino SMEs, as namely:

 
   Asia Pacific Economic Cooperation (APEC), Survey on Small & 
   Medium Enterprises, Coordinated by the Medium and Small 
   Administration, Ministry of Economic Affairs, Chinese Taipei 
   (1993). http://www.actetsme.org/archive/smesurvey.html 
 
   Hooley, Richard and Muzaffer Ahmad, Small and 
   Medium-SizeEnterprises and Development Process in Four Asian 
   Countries: An Overview (1980s) 
 
   ASEAN-EU Partenariat '97 is supported by the European 
   Commission within the framework of Asia-Invest, one of whose 
   aim is to help encourage networking among SMEs from Europe 
   and Asia. It became fully operational in September 1997. 
   http://aeup.brel.com/sme/sme6.html 

Although the above three surveys provide useful insights and direction for this study, all of them lack the depth that this study would like to reach. All three are most useful in highlighting the difficulties encountered by SMEs surveyed as well as in laying out the overall importance of SMEs in economic development. While these surveys could be useful in studying SMEs at a macroeconomic level, they provide limited insights into the entrepreneur's characteristics and decision-making process. Questions that pertain directly to the …