i

Abstract

The micro, small and medium enterprises (MSMEs) are the backbone of the

economy. They drive the economic stability of a region or a country by generation of

employment opportunities, rural industrialization and development, use of indigenous

resources, creation of linkages with existing industries and entrepreneurial development.

This research focused on MSMEs sustainability as there are few studies done on the

subject in the Philippines.

The purpose of this study is to identify the factors that influenced sustainability using

the Elkington’ three bottom line framework (3ps: people, profit and planet) of the

manufacturing MSMEs in South Cotabato, Sarangani Province and General Santos City

(SOCSARGEN) a region in southern Philippines. The study is descriptive and

correlational. The data were culled from 309 owner/managers of manufacturing MSMEs

in SOCSARGEN through survey questionnaire that gathered information on enterprise

characteristics, entrepreneurial characteristics and perceptions on sustainability.

The findings of the study revealed factors that significantly influenced sustainability.

These are the entrepreneurial characteristics, enterprise characteristics and business

environment.

Keywords: Sustainability, MSMEs, economic stability

 CHAPTER I

INTRODUCTION

1.1 Background of the Study

In today’s competitive world, survival is the name of the game. In order to survive

depends on the individual’s stint to live. Everyone creates his own destiny. Every

individual struggles to win the prize. In business, the entrepreneurs aspire to survive in

the midst of obstacles and challenges. Sustainability is always the focus of every

entrepreneur. Sustainability has a price, it demands endurance and resiliency. This study

of resiliency and survival endeavours to investigate the sustainability of manufacturing

micro, small and medium enterprises (MSMEs) in South Cotabato, Sarangani Province

and General Santos City (SOCSARGEN), a region in Southern Philippines.

Sustainability of MSMEs is an interesting study because of the constraint of being

small or little. Littleness is being weak. Being small hints at vulnerability to failure.

“Small businesses are here today and gone tomorrow” can often be heard about MSMEs

particularly the micros. Another important thing of interest is the number of MSMEs

which represent 99.57 % of the total establishments in the country according to the

Department of Trade & Industry [DTI] (2018). The figure is alarming to the economy if

this large number of business enterprises does not survive.

 2

With the very large proportion of MSMEs in the economy the need for sustenance or

being able to continue over a period of time is vital. Sustainability of these enterprises

has a crucial role as MSMEs contribute greatly to the nation’s economic expansion (DTI,

2015).

Statistical data worldwide revealed that MSMEs are the backbone of a country’s

economy. According to the Office of the United States Trade Representative Executive

Office of the President (2018) small and medium enterprises are the backbone of the

American and European economies.  The United States’ thirty million small and medium

enterprises account for nearly sixty seven percent of private sector jobs in the recent

decades. Likewise, the vast majority of business in the United Kingdom are small and

medium businesses (market-inspector.co.uk, 2018). Small and medium enterprises in the

UK account for 99.9 percent of all private sector businesses and employ over 60 percent

of all private sector workers.

The same is true in the other parts of the world. Yoshino and Taghizadeh-Hesary

(2016) reported that small and medium enterprises are the pillar of the economies of Asia

making up for 98 percent of all enterprises and 66 percent of the national labor force on

average during the period from 2007 to 2012. These enterprises were instrumental for an

average of 38 percent of the gross domestic product or manufacturing value-added in

Asia on average during the period.

In the Philippines, MSMEs constitute 99.57 percent of the total establishments in the

country according to the DTI (2018). The figure as provided by the Philippine Statistical

Authority [PSA] (DTI, 2018), reported that 89.63 percent are micro enterprises, 9.5

percent belongs to the small category and 0.44 percent are medium enterprises. The large
 3

enterprises constitute only 0.43 percent of the total firms in the country. MSMEs

generated 63.3 percent of the total jobs. Another contribution of MSME s is the export

revenues of 25 percent. Sixty percent of the exporters are the MSMEs. In terms of the

gross value added (GVA), micro enterprises contributed 4.9 percent, small enterprises

20.5 percent and the medium enterprises 10.3 percent. The manufacturing industry led

among the industries in contributing to the country's economic growth (Business Wire,

2018). The manufacturing sector composed 12.5% in the total MSME sector distribution.

The sector contributed 16.1% in employment and 6.87% in value added, the largest

among the sectors, according to DTI (2018).

The biggest challenge which MSMEs face is being able to sustain their performance,

and hence succeed and survive (Mabhungu & Van Der Poll, 2017). In the U.S., over 50%

of small businesses fail in the first year and 95% fail within the first five years based on

2002-2003 data (Titus, 2008). In South Africa, 40% of new business ventures fail in their

first year, 60% in their second year, and 90% in their first 10 years of existence

(Ramukumba, 2014). In the Philippines many new businesses fail during their first three

years (Diaz & Fajardo, 2015).

According to Titus (2008), the 12 broad causes that lead to a small business failure

are: lack of industry experience, inadequate financing, lack of adequate cash flow, poor

business planning, management incompetence, ignoring the competition, unworkable

goals, diminished customer base, uncontrolled growth, inappropriate location, poor

system of control and lack of entrepreneurial skills

Previous researches highlighted the causes of failure of MSMEs as limited access to

finance and high cost of finance, lack of marketing skills and market knowledge,
 4

inadequate management and entrepreneurial skills, lack of access to infrastructure, lack

of access to land, lack of information and hostile regulatory environment.

In the Philippines, MSMEs experience many hindrances to further growth and

productivity. These challenges include credit constraints, unwieldy registration

procedures and strict regulatory environments, and other constraints related to an

economic playing field that is not level between large and small firms (Mendoza &

Melchor, 2014). MSMEs have lower probabilities of survival than larger firms, leading to

high rates of market entry and exit across nearly all economic sectors. To go beyond

survival, MSMEs will need to brave successful business transformation in various

dimensions of their operations: enhanced entrepreneurial skill, innovation in process and

product development, more successful collaboration across MSMEs and with larger

firms, and improved crisis resilience among other factors.

In SOCSARGEN, the National Economic Development Authority (NEDA) presented

in the Regional Development Plan 2017-2022 that the region has limited financial

capacities of MSMEs since they could not access, infuse and acquire technology,

establish product standards and information system, comply with local and national

quality standards.

Harvie and Charoenrat (2015), however, pointed out that despite the perceived

weaknesses of micro, small and medium enterprises, these firms have not been swept

away with the process of globalization and regional integration, but, rather, the role and

contribution of these firms have changed and evolved which have enabled many micro,

small and medium enterprises to remain internationally competitive and collectively be

an important source of employment generation.

 5

Sustainability is essentially a firm’s resiliency over time. Its attributes are economic

growth (innovation and productivity), social equity (community, health and wellness,

human rights) and environmental protection (climate change, biodiversity). These form

the three stalwarts of business sustainability: social performance, financial performance

and environmental performance. These three pillars are integrated to refer to

sustainability (Marquez, 2014).

This study to peruse the sustainability of manufacturing MSMEs in SOCSARGEN

looks into the factors that contribute to MSMEs success. The entrepreneurial

characteristics factor include those indicators which are specifically associated to the

owners/managers of MSMEs such as their personality traits: age, gender, education,

previous work experience, aspiration to sustain or grow the business, seeking for

opportunities, willingness to take risks, innovativeness and creativeness, education,

training and experience. The enterprise characteristics factor relates to the structural

characteristics, policies and strategies of the organization which encompass age and size

of the firm, financial management, research and development initiatives, market and

product development, employment of advanced technology, employee’s skills

development, and customer relations management. The networks factor connects to the

linkages of the different organizations in the business community such as the trade

associations, chambers, family and friends, suppliers, competitors, educational

institutions and other stakeholders. The business environment factor surrounds external

elements or circumstances associating the political, legal, economic, sociocultural,

technological and ecological components.

 6

Research Gap

There are limited research studies on business sustainability in the Philippines as this

is a new awareness in business enkindled by the 1987 Brundtland report of the World

Commission on Environment and Development (WCED) that highlighted three

fundamental components of sustainable development which are social equity, economic

growth and environmental protection. Business sustainability from then has evolved from

financial profitability focus and now to include the social and environmental dimensions.

Business enterprises are now incorporating sustainability principles into their operations.

It has come to be a strategic business motivation for most companies as it drives

company growth through increased customer support and profit from having more

savings and less resource wastage, thus becoming a key variable in any company’s

objective of obtaining competitive advantage (Montiel, 2008). It is critical to study the

role of business sustainability in the perspective of manufacturing MSMEs sector.

MSMEs struggle with limited resources to sustain their business operations but

incongruously are being the primary source for the most number of the world’s

production (Hojnik & Rebernik, 2012). Marquez (2012) unravelled that albeit employee

commitment and skills development were important factors to business sustainability,

however, investments made by MSMEs to workforce wellness consisted only of the bare

minimum which is the provision of healthcare and employee’s basic needs. According to

Ocampo and Ocampo (2015) the manufacturing sector has a strong leverage with

sustainability due to an inherent substantial amount of resource consumption as the result

of introduction of a number of new products year after year as innovation initiatives

 7

progress, and require considerable quantity of energy and materials consumption and

wastes generation contributing to an adverse effect on the community.

A great number of success factors are presented in literature, but there is no coalescing

theory to assimilate or integrate all aspects of MSMEs success. The applicability of these

success factors appears to be relative and varies with the business environment, that is,

the industry and the country or region these enterprises operate in (Machado, 2016).

Stated differently, one success factor may be of great importance in one industry or

country or region but it may not necessarily be of the same importance in another.

Knowledge remains more fragmented than cumulative. Nonetheless, MSMEs tend to

exhibit high failure rates and poor performance levels, necessitating for more empirical

studies to investigate the sustainability in different business setting.

1.2 Framework

1.2.1 Theoretical Framework

Caroline Reeg, a specialist in private sector development and MSMEs and a research

associate with the German Development Institute (DIE) integrated school of thoughts

regarding the factors that affect enterprise upgrading in 2013 (Hampel-Milagrosa, 2014).

Enterprise upgrading means growth or the progressing or advancing of an MSME from

one category to the next category, such as, from a micro enterprise to small enterprise,

from a small enterprise to medium enterprise and from a medium enterprise to a large

enterprise. The factors which affect the growth of the enterprise are the internal factors

which are the characteristics of the entrepreneur and the enterprise and the external
 8

factors which include the networks and the business environment. The result of the

integration is a four-layer onion figure depicted in Figure 1.1.

Figure 1. 1 Caroline Reeg’s Onion Model (Hampel-Milagrosa, 2014, p.16)

The core or the first layer of the Caroline Reeg’s Onion Model focuses on the

entrepreneur characteristics. The age, gender, education, work experience, aspiration and

risk-taking capabilities of the entrepreneur have been the most important in empirical

studies in developing and developed countries (Hampel-Milagrosa, 2014). Other

literature also includes innovativeness/creativeness and seeking for opportunities efforts

of the entrepreneur as part of entrepreneur characteristics.

In the second layer is the enterprise characteristics. It encompasses the age of the

enterprise, location, sector, formality, financial management, the ability of the

organization to identify, evaluate and exploit external knowledge for commercial ends

such as investments in research and development and human resource development and

other absorptive capacity for knowledge.

The third layer relates to the interaction of the entrepreneur and the enterprise with

networks as contributory to enterprise upgrading. Networks are important because they

 9

connect entrepreneurs to prospective provenance of capital, new employees, strategic

linkages, and service providers. Entrepreneurs share information and assessments of

markets and technology and lessons learned from personal experience. These connections

are important to an entrepreneurial company’s sustainability.

The fourth and outermost layer is the business environment. This surrounds the factors

that contribute the context and conditions in which businesses are placed. This layer

covers access to finance, availability of raw materials, access to market, government

support and firm location.

The Caroline Reeg’s Onion Model framework was used in various researches to

determine the factors that influence enterprise upgrading in Egypt, India and the

Philippines (Hampel-Milagrosa, Loewe and Reeg, 2015).

Michael Porter, a Harvard Business School professor wrote "Competitive Advantage"

to help business create a sustainable competitive advantage (Amadeo, 2018). To build

sustainable competitive advantage, the business must create clear goals, strategies, and

operations. The corporate culture and values must give support to those goals. Porter

enumerated the three primary ways businesses achieve a sustainable advantage. These

are cost leadership, differentiation, and focus.

In cost leadership strategy the business offers reasonable value at a lower price. The

business persistently improve its operational efficiency. In differentiation strategy, the

businesses deliver better benefits than others. A firm provides a unique or high-quality

product. Other ways to achieve this strategy are to make delivery faster. The business

charges a premium price in employing this strategy. Companies typically achieve

 10

differentiation with innovation, quality, or customer service. The businesses which

service their target market better than anyone else is employing the focus strategy.

Joseph A. Schumpeter, an economist and one of the twentieth century’s greatest

intellectuals, developed the Theory of Economic Development in 1911. In this theory the

entrepreneur is the key figure in the process of development (Langroodi, 2017). The

entrepreneur is the centrality in the development process because he comes out with

development in a society and sustain it. Taking high degree of risk, decisiveness, strong

communication skills, creativeness, competitiveness and innovativeness characterize the

Schumpeter’ entrepreneur.

According to the theory as reviewed by Langroodi (2017), the entrepreneur requires

two things to achieve his role. First, the entrepreneur must have the technical knowledge

wherein he can introduce new products or new combinations of factors of production.

Secondly, credit and capital play a vital role, thus, banks, according to the theory, are

special phenomenon of development. Banks are necessary in the consummation of

innovations.

An entrepreneur innovates to earn profits. The entrepreneur achieves innovation by

putting through a new combination of production factors, launching new products,

introducing new methods of production, expanding into new markets, and providing new

forms of management. Once an innovation proved to be profitable and successful, other

entrepreneurs follow and may imitate. Innovations are followed by a series of

innovations, which drive to the increase of investments and catapult to prosperity.

John Elkington, a world authority on corporate responsibility and sustainable

development, coined the Triple Bottom Line (TBL) to measure sustainability (Slaper &
 11

Hall, 2018). TBL is an accounting framework that incorporates the social, financial and

environmental performance. The TBL dimensions are also called the three Ps: people,

profit and planet. The people dimension considers the employees and the community

wherein the business operates. Sustainable practices on this dimension is manifested

when the business pays fair remuneration and provides humane working conditions to its

employees. Also, the business finds initiatives to give back to the community as an act of

social responsibility. The profit dimension is the traditional way to measure sustainability

through the financial statements. The planet piece in the TBL indicates efforts to sustain

the environment like managing natural resources more efficiently and reduction of

production wastes. The TBL is illustrated in Figure 1.2.

Figure 1. 2 Triple Bottom Line.

1.2.2 Conceptual Framework

Directed and guided by the theories on economic development, competitive

advantage, enterprise upgrading, growth and sustainability, a conceptual framework is

developed for the study of sustainability of manufacturing MSMEs in SOCSARGEN.

 12

The conceptual framework is shown in Figure 1.3. This study investigates the influence

of entrepreneur characteristics, enterprise characteristics, networks and business

environment to sustainability of manufacturing MSMEs in SOCSARGEN on the people

bottom line, the profit bottom line and the environment bottom line. The entrepreneurial

characteristics, enterprise characteristics, networks and business environment are the

independent variables. Each independent variable has five indicators.

Entrepreneur characteristics is the central force of economic development or the

engines of firm growth (Hampel-Milagrosa, 2014). The indicators of this factor are:

aspiration to sustain the business (Wright & Stigliani, 2012), seeking for opportunities

(Go & Escareal-Go, 2018), willingness to take risks (Hampel-Milagrosa et al., 2015),

innovativeness/creativeness (Daunfeldt & Elert., 2013, Achtenhagen, Naldi & Merlin,

2010 ) and entrepreneur’s education, training and business experience (Machado, 2016,

Hampel-Milagrosa et al., 2015).

Enterprise characteristics encompass the firm-level factors such as financial

management (Wiese, 2014), research and development (Hampel-Milagrosa et al., 2015),

advanced technology (DTI, 2015), skills development (Hampel-Milagrosa et al., 2015),

and customer satisfaction (Jebna & Baharudin, 2013).

Networks or linkages cover affiliation in business organizations (Hampel-Milagrosa,

et al., 2013), support from family and friends (Arregle, Batjargal, Hitt, Webb, Miller, &

Tsui, 2013), suppliers relationship (Machado, 2016), interaction with competitors (Wiese,

2014), and linkage with universities and other educational institutions (Machado, 2016).

The business environment surrounds the factors that provide the context and

conditions in which businesses are situated. It encompasses the physical, technological,

 13

socio-cultural, demographic, political, governmental, environmental and economic

influences that affect the survival and growth of the enterprise. They interact

continuously with the operations of the business in positive or negative ways, depending

on the type of the business and the competence of the entrepreneur. (Diaz and Fajardo,

2015). Business environment have internal and external factors that influence a business.

These include access to finance (DTI, 2015), availability of raw materials (Macabasco,

2011), access to market (DTI, 2015), government support (Schoonjans, Cauwenberge &

Bauhede, 2013) and business location (Reid & Xu, 2012).

The entrepreneurial characteristics, enterprise characteristics, networks and business

environment are the independent variables used in this study in predicting sustainability.

These factors are also used in predicting sustainability in terms of people, profit and

planet bottom line.

Firm age is this study is the moderating variable. According to Teruel-Carruzosa

(2010) the age of the firm influences sustainability since growth was the result of the

learning process and experience acquired over time.

Business sustainability (University of Wisconsin Sustainable Management) is the

management and coordination of environmental, social and financial demands and

concerns to ensure responsible, ethical and enduring success. Business sustainability is

essential to the long-term prosperity of business enterprises (Posner, 2014). Sustainability

principles serve to maximize opportunities and to minimize the negative impact of the

core operations of the business have on the environment and the communities and

economies in places where they operate (Salimzadeh, 2016,). Business sustainability is

 14

the dependent variable. Sustainability is analysed in terms of people, profit and planet

bottom lines.

The people bottom line relates to social sustainability which encompasses health and

wellness, personal and professional growth of employees, safer products, reduced social

problems and community development (Chow & Chen, 2012). It involves the welfare of

employees and internal stakeholders of the organization (Marquez, 2012).

The profit bottom line correlate with sustainable competitive advantage, increased

employee commitment, improved customer relationships, increase in sales and attract

new customers (Roxas & Chadee, 2012). It is concerned with the ability of the

organization to achieve profit that would be sufficient to keep the business going. It also

represents the resources and funds that business would need to continue its operations

(Marquez, 2012).

The planet bottom line connects with natural resource conservation, improved ecology

and biodiversity, environmental risk reduction, reduced toxins, waste reduction and

reduced air pollutants (Roxas & Chadee, 2012). It is also referred to environmental or

ecological sustainability.
 15

INDEPENDENT VARIABLES DEPENDENT VARIABLE

Entrepreneurial
characteristics
SUSTAINABILITY

Enterprise characteristics People

Profit
Networks
Planet

Business environment

MODERATING VARIABLE
Firm age

Figure 1.3 Conceptual

Framework
 16

1.3 Statement of the Problem

This study purported to determine the factors influencing the sustainability of

manufacturing MSMEs in SOCSARGEN and is aimed in answering the following

questions:

1. What is the profile of the manufacturing MSMEs in SOCSARGEN in

terms of the following:

a) Location

b) Years in operation

c) Form of organization (single proprietorship, partnership,

cooperative, association, corporation)

d) Value of assets

e) Number of employees?

2. What is the profile of the entrepreneurs of the manufacturing MSMEs

in SOCSARGEN in terms of the following:

a) Age

b) Gender

c) Education

d) Training

e) Business experience

f) Firm management?

3. What is the level of influence on the sustainability of manufacturing

MSMEs in SOCSARGEN in terms of:

a) entrepreneurial characteristics,
 17

b) enterprise characteristics

c) networks

d) business environment?

4. Which independent variable/s (entrepreneurial characteristics,

enterprise characteristics, networks and business environment) significantly

influences the sustainability of the manufacturing MSMEs in SOCSARGEN in

terms of the People, Profit and Planet?

5. Does firm age moderate the relationship between entrepreneurial

characteristics, enterprise characteristics, networks and business environment

taken together and sustainability of the manufacturing MSMEs in SOCSARGEN

in terms of People, Profit and Planet?

1.4 Hypotheses

Based on the statement of the problem, this study investigated further to test the null

hypothesis that:

H01. There is no significant relationship between entrepreneurial characteristics and

sustainability of manufacturing MSMEs in SOCSARGEN.

H02. There is no significant relationship between enterprise characteristics and

sustainability of manufacturing MSMEs in SOCSARGEN.

H03. There is no significant relationship between networks and sustainability of

manufacturing MSMEs in SOCSARGEN.

H04. There is no significant relationship between business environment and

sustainability of manufacturing MSMEs in SOCSARGEN.

 18

H05. Firm age does not significantly moderate the relationship between

entrepreneurial characteristics, enterprise characteristics, networks and business

environment taken together and sustainability of manufacturing MSMEs in

SOCSARGEN.

1.5 Objectives

The study sought to determine:

1. the profile of the manufacturing MSMEs in SOCSARGEN in terms of

the following:

a) Location

b) Years in operation

c) Form of organization (single proprietorship, partnership,

cooperative, association, corporation)

d) Value of assets

e) Number of employees.

2. the profile of the entrepreneurs of the manufacturing MSMEs in SOCSARGEN in

terms of the following:

a) Age

b) Gender

c) Education

d) Training

e) Business experience

f) Firm management.
 19

3. the level of influence on the sustainability of manufacturing MSMEs in

SOCSARGEN in terms of:

a) entrepreneurial characteristics,

b) enterprise characteristics

c) networks

d) business environment.

4. Identify which independent variable/s (entrepreneurial characteristics, enterprise

characteristics, networks and business environment) significantly influences the

sustainability of the manufacturing MSMEs in SOCSARGEN in terms of People,

Profit and Planet.

5. Verify if firm age moderate the relationship between entrepreneurial

characteristics, enterprise characteristics, networks and business environment

taken together and sustainability of the manufacturing MSMEs in SOCSARGEN

in terms of People, Profit and Planet.

1.6 Significance of the Study

This study would be of help to:

Manufacturing MSMEs. The findings of the research would be a valuable information

to entrepreneurs about business sustainability, the many benefits derived in adopting

sustainability not only in financial aspect but also in social and environmental, and their

role and capability to adopt sustainability practices despite their small size. The result of

the study would also encourage MSMEs to change mindsets regarding their impact on the
 20

local community and environment, the relevance of environment issues to their business,

and their responsibility to help improve society.

Would be entrepreneurs. This study would guide and prepare would be entrepreneurs

for their business venture to achieve sustainability.

Small and Medium Enterprise Development Council (SMED), Inc. The findings of the

study would give guidance to SMED to create a better business climate that will promote

the culture of entrepreneurship and enrich their programs on policy advocacy, trainings

and seminars, business consultancy and advisory services.

Department of Trade and Industry (DTI), Department of Science and Technology

(DOST) and other government agencies. The findings of the study would assist policy

makers to formulate and recommend intervention measures for the support of MSMEs.

DTI could implement the appropriate remedies to boost the MSMEs sustainability in

SOCSARGEN. DOST and other government agencies mandated to give support to

MSMEs could provide the solutions to enhance and propel the growth of the MSMEs in

SOCSARGEN.

Academic institutions. The findings of the study could be the basis for further

research and strengthening of the extension services program of the academic institutions.

Researchers. The study could be an additional reference material and basis for further

studies and future researches.

1.7 Scope and Limitations of the Study

This study focused on the sustainability of the manufacturing MSMEs in

SOCSARGEN.
 21

Areas of inquiry covered the profile of the manufacturing MSMEs in SOCSARGEN

in terms of location, products, firm age, form of organization, value of assets and number

of employees. The study also inquired about the profile of the entrepreneurs in the

manufacturing MSMEs in SOCSARGEN in terms of age, gender, education, training,

experience and firm management.

The respondents were the owners or managers of the manufacturing MSMEs in

SOCSARGEN registered in 2018 with the Business Permits and Licensing Division of

the local government units in South Cotabato, Sarangani Province and General Santos

City.

1.8 Definition of Terms

The following terms used in this research work are defined operationally for a better

grasp of the study.

Business Environment. Practically this refers to the business atmosphere, climate,

situation and what surrounds the business. It encompasses political stability,

infrastructure, peace and order situation, the presence of the banks and other financial

institutions, universities and other learning institutions, suppliers, customers, competitors.

Enterprise Characteristics. This refers to company’s attributes, qualities and aspects.

In financial management, it is how the business handle cash flow, access resources for

business operations. In human resource management, it is how the business develop and

enhance skills of employees and motivates them. In terms of customer relationships, it is

how the enterprise keep customers and attract new ones. Generally it encompasses the

quality of governance in the business.

 22

Entrepreneurial Characteristics. This refers to the important traits of successful

entrepreneurs. These characters point to their discipline, confidence, open-mindedness,

being a self-starter, competitiveness, creativeness, and determination to succeed.

Micro, medium and small enterprises (MSMEs). This refers to the small businesses.

Businesses with value of assets less than three million pesos are categorized as micro

enterprises. Small enterprises have assets more than three million pesos but less than

fifteen million pesos. Medium enterprises have value assets between fifteen million and

one hundred million pesos.

Networks. This is related to linkages and connections. Affiliation in business

organizations, maintaining good relationship with suppliers, interacting with competitors,

keeping friends and relatives and linkages with academic institutions are ways to connect.

Sustainability. This relates to the capacity of a business to survive integrating the

social, financial and environmental spheres of the business operations. This is managing

the intrinsic social, financial and environmental risks that business enterprises be forced

to contend with.

Triple Bottom Line (TBL). This pertains to an accounting framework that incorporates

the three dimensions of performance in social, environment and finance in evaluating

sustainability. The three dimensions are also referred to as the three Ps: people, profits

and planet. The people are the well-being of the employees and the wider community

where the firm operates. The profits are the financial rewards of the business. The planet

entails efforts in managing natural resources more efficiently and reduction of wastes that

resulted in the production activities.

 CHAPTER II

REVIEW OF RELATED LITERATURE

Reviews of the different literature and studies related to sustainability of micro, small

and medium enterprises are covered in this chapter.

According to DTI (2018) MSMEs play a very important role in developing Philippine

economy. They help reduce poverty by creating jobs for the country’s growing labour

force, stimulate economic development in rural and far-flung areas.

2.1 THE MICRO, SMALL AND MEDIUM ENTERPRISES IN THE

PHILIPPINES

The Philippine businesses are categorized by asset size and by number of employees

as shown in Table 2.1 by the Small and Medium Enterprise Development (SMED) and as

approved by the Bangko Sentral ng Pilipinas (BSP), through Monetary Board Resolution

328 dated March 2003(DTI, 2015).

Table 2.1 Firm Categories by Asset Size and Number of Employees

Category Total Assets* Number of Employees
Micro P 3,000,000 or less 1–9
Small 3,000,001 - 15,000,000 10 – 99
Medium 15,000,001 – 100,000,000 100 - 199
Large more than 100,000,000 more than 200
*excluding the value of land

In terms of Gross Value Added (GVA), the small and medium sector contributed

20.5% and 10.3% respectively, while the large sector contributed 47.9%. Of the total, the
 24

manufacturing enterprises contribute the largest share of 6.87%. Within the sector, small

enterprises accounted for the largest share of 20.5%. Medium enterprises followed with a
 25

share of 10.3%. Among small enterprises, manufacturing got a share of 3.82%. For

medium enterprises, manufacturing accounted for the biggest share of 2.77%.

Figure 2. 1 Contribution of micro, small, medium and large enterprises in the gross
value added (GVA) in the Philippines (DTI, 2018).

2.2 THE SOCSARGEN REGION

The SOCSARGEN Region is composed of South Cotabato, Sarangani Province and

General Santos City. Geographically, SOCSARGEN is under Region XII in Southern

Mindanao, Philippines.

South Cotabato (Provincial Government of South Cotabato) is the major producer of

pineapple, corn, papaya, abaca and cassava in Region 12. South Cotabato is a sound and

stable location for business. Dole Philippines, one of the largest pineapple plantations in

the world is in operation in South Cotabato since 1963. Dole Philippines exports an array

of fruit products to the international market. Also, a family owned and managed

corporation in this province, Kablon, is well known to produce delicious products such as

juices, jams, jellies, marmalades, preserves, tablea and spices.

 26

General Santos City is recognized as one of the most competitive cities of the country

by the National Competitiveness Council of the Philippines [NCC] (NCC, 2018). It is

also among the list of Highly Urbanized City category of the country with world-class

infrastructure such as the international airport, the wide and well-paved roads, clean and

spacious wharf and other infra facilities (General Santos City Economic Management and

Cooperative Development Office [CEMCDO], 2018). The city is also the principal

trading port catering South Cotabato, Cotabato, Sultan Kudarat, and Sarangani. There are

six tuna canning factories located in the city. These are the Seatrade, General Tuna,

Celebes, Philbest, Ocean and Alliance Select Food International. The fishport in General

Santos City is the country’s most modern fishport with world class facilities and

amenities that supplies Sashimi Grade Tuna to the world. There are two universities

located in the city, the Mindanao State University and Notre Dame of Dadiangas

University. Universities and other educational institutions serve the region, as part of

their extension services to their immediate communities, by providing vital incubation

support for start-up businesses, skills training, education on product improvements and

process enhancements that boost business potential. There are as well a number of banks

operating the city. Bank of the Philippine Islands, Banco de Oro, Metrobank, Land Bank

of the Philippines, Development Bank of the Philippines, Rizal Commercial Banking

Corporation, Security Bank are the larger banks. The banks provide financial resources

for the community.

Sarangani Province, the 2018 fifth most competitive province in the Philippines

(NCC, 2018) is front door to BIMP-EAGA (Brunei Darussalam-Indonesia-Malaysia-

Philippines East Association of Southeast Asian Nations Growth Area), a sub-regional

 27

economic cooperation designed to spur economic development in the lagging sub-

economies.

Figure 2. 2 Map of SOCSARGEN, Philippines.

2.3 MSMEs SUCCESS FACTORS AND CHALLENGES

Growth is a vital event in small enterprises [ CITATION Hil16 \l 13321 ]. Survival of

small enterprises imperatively relies on their competence to participate in the market with

other big companies. Sustaining is necessary for the enterprises and the stakeholders.

Growth diminishes the likelihood of bringing to an end small business (Rauch and

Rijskik, 2013)

Several studies had been done to investigate the determinants of success in small

businesses. Machado (2016) made a review of the recent literature on growth of small

businesses. His work identified the following information on determinants for small

business growth as studied by various researchers in this new decade:

Entrepreneurial characteristics:
 28

 The entrepreneurs’ education and experience impact on the enterprise’

growth;

 Entrepreneurs’ rank within their personal carrier;

 Motivation;

 Growth intentions of entrepreneurs;

 Managerial competences;

 Fear of failure;

 Innovation;

 Entrepreneur’s experience acquired over time;

Enterprise characteristics:

 Firm size and age;

 Availability of resources;

 Human resources and market strategies;

 Market structure

Networks:

 Joint undertaking with suppliers;

 Relational competence and insertion in networks;

 Networks and inter-organization relationships;

 Family ties through family emotional support

Business environment:

 Public policies and support programs for business firms;

 Exports by enterprises and internationalization;

 29

 Choice of firm’s site

The determinants of growth were classified into entrepreneurial characteristics,

enterprise characteristics, networks and business environment categories.

There are also data about the challenges micro, small and medium enterprises

encounter. DTI (2015) reported that one of the most difficult hindrances encountered by

the local small and medium enterprises is the limited access to financing. Many start-up

businesses have limited access to fund sources. For initial capital, most enterprises

depend on their savings or borrow from relatives and friends. Inability to access loans

from formal credit sources are caused by the lack of information on how to access such

services, the fear of the inability to meet the loan obligations, and the absence of the

collateral. Low grade fixed assets, low level of technology, production inefficiencies,

lack of sufficient working capital, and limited production capacity are the outcome of the

absence of external funding. Other challenges small and medium enterprises encounter

in financing cover limited information on the different loans/financing programs

available; high interest rates; stringent collateral, equity and documentary requirements;

low collateral valuation and tedious loan application process.

Another issue that troubled the MSMEs is the inadequate knowledge of market

opportunities (DTI, 2015). The problem of penetrating bigger markets has constrained

entrepreneurs to limit their activities to selling locally, more particularly direct to final

consumers. Only a few entrepreneurs are able to enter in the national and foreign

markets. Many entrepreneurs face other challenges and problems in the area of

marketing in the lack of appropriate channel to obtain market information, limited recent
 30

market information, limited good business networks, not enough market linkage, and the

need to meet internationally recognized technical regulations.

According to Yoshino and Taghizdeh-Hesary (2016) small and medium enterprises

encounter difficulties from expanding competition, the faculty to adjust to fast changing

market demand, technological change, and capacity constraints pertaining to knowledge,

innovation, and creativity. For many small and medium enterprises, however, their

capability is often not extensively actualized due to factors associated to their being small

scale:

 Limited resources in finance, technology, skilled labour, market access, and

market information,

 lack of economies of scale and scope,

 higher transaction costs compared to large enterprises,

 lack of networks linkages that can contribute to limited information, knowledge,

and experience of domestic and international markets,

 increased market competition with large multinational enterprises caused by

globalization and economic integration,

 inability to compete against larger firms in terms of research and development

expenditures.

According to Hampel-Milagrosa, et al. (2013) most low and middle income countries

including the Philippines, are distinguished by an event wherein there are many micro

and small enterprises and only few medium enterprises, and scarcely any of the small

ones are linked to larger companies. The phenomenon causes a problem because the

medium enterprises create the bulk of higher-quality, higher-wage jobs in many

 31

countries. The medium enterprises indicate to be an important engine of innovation and

economic diversification.

2.3.1 ENTREPRENEURIAL CHARACTERISTICS

According to HISCOX (2018) being an entrepreneur needs much more than great

ideas. True entrepreneurs are an out of the ordinary character, the ones who have a

distinctive combination of qualities, skills and characteristics that let them succeed. The

attributes of successful entrepreneurs are:

1. Entrepreneurs are determined. Entrepreneurs set goals and are

determined to achieve those goals. They are desirous to succeed and will stop any

obstruction that may present itself on their way. They are strategic in their game

plans and always have a clear idea in mind of exactly what they want to achieve and

how they plan to achieve it. According to Wright and Stigliani (2012) firms grow

but the entrepreneurs take the decision to make them grow. To grow and not to

grow is a condition proper to small enterprises within the market. The decision on

when, how much and where to grow belongs to the entrepreneur. Intentions vary

according to individuals.

2. Entrepreneurs are committed. Entrepreneurs are not easily defeated;

they view failure as an opportunity for future success. If they do not succeed the

first time, they will stay committed to their business and will continue to try and try

again until entrepreneur succeed.

3. Entrepreneurs are proactive. Entrepreneurs take prompt actions to

accomplish objectives.
 32

4. Entrepreneurs are resilient. The entrepreneurs flourish and grow in the

face of any challenges, are persistent to achieve long-term goals despite adversity.

5. Entrepreneurs unceasingly seek for opportunities to improve.

Entrepreneurs are cognizant that every situation is a business opportunity, studying

the environment to uncover and interpret what is going on in order to connect and

take actions on potential future outcomes. Entrepreneurs can come out with new

and innovative ideas. Opportunity seeking is the process of spotting, evaluating and

pursuing relevant and sustainable revenue and profit generating activities in the

market place (Go & Escareal-Go, 2018).

6. Entrepreneurs are risk takers. Entrepreneurs see rewards for engaging

on opportunities. They have an appetite for taking risks. Hampel-Milagrosa et al.

(2015) unravelled in their study that enterprise able to upgrade are more motivated

and more willing to take risks. Risk taking is an act of doing something that

involves danger in order to achieve a goal.

7. Entrepreneurs are great listeners. The most important piece of learning

is listening.

8. Entrepreneurs have great people skills. Entrepreneurs have strong

communication skills which let them sell their product or service to clients and

customers effectively. They have also the adeptness to motivate, inspire and

influence people.

9. Entrepreneurs are instinctively creative. They are able to turn up with

innovative ideas and turn those ideas into profits. According to Daunfeldt and Elert

(2013) there is a great probability that small innovating firms grow faster than big
 33

firms. Production strategies, such as the development of new products and services,

technological specialization and focus on innovation determined growth

(Achtenhagen et al., 2010). Innovation is about having a new way of doing things

with commercial success. It targets to solve, in a novel way, pain points of

customers and non-customers who are willing to pay for the solution, either through

a product or a service (Go & Escareal-Go, 2018). Development of new products and

services, technological specialization and cynosure on innovation results to growth

(Achtenhagen et al., 2010).

10. Entrepreneurs are zealous. Passion is possibly the most essential

characteristic of the successful entrepreneur. They are adamant about their job and

to make their business grow.

The research of Hampel-Milagrosa (2014) on enterprise upgrading in the Philippines

attested to the centrality of the entrepreneur. Entrepreneurs’ education and work

experience in top firms are characteristics that make the enterprise more likely to

upgrade. Education and work experience give the entrepreneur with the necessary

knowledge, skill and motivation required to take on activities or make critical decisions

that further increase the business’s upgrading chances. These provide guidance in

decisions on investing in research and development and equipment, developing human

resources and innovative marketing strategies to expand markets and attract new clients.

Furthermore, the research also revealed that Filipino enterprises that upgraded were led

by entrepreneurs with a wealth of opportunities. In the Philippines, there are few

entrepreneurs who have the opportunity to acquire quality education which allow them to

get exposure in lead firms and acquire work experience. Successful entrepreneurs are
 34

from families that have sufficient wealth or personal connections to help them upgrade.

Education at first-rate schools makes possible leads to other networks and additional

sources of finance. Family wealth is also an important immediate source of funding for

pre-financing production, investing in machines and participating in local and

international trade fairs. For the Philippine enterprises to upgrade there is a need to

increase entrepreneurial capacity by increasing knowledge and skills base. This can be

achieved through access to quality and affordable education. Rauch and Rijskik (2013)

unravelled in their research that entrepreneurs’ education and experience may influence

the firm’s growth. Davidson et al (2010) also found out that experience in the business

sector together with previous experiences in other firms is highly important. According

to Schramm (2018) successful entrepreneurs assimilate rich sets of lessons and

experiences that proved crucial to their success while working for established companies.

2.3.2 ENTERPRISE CHARACTERISTICS

Wiese (2014) found that good financial skills/knowledge is important to

sustainability. It is vital in any organization. According to Alam (2011) financial

hindrances have the most important effect on the small and medium enterprises’ growth

in Malaysia. Difficulty in accessing finance poses as an obstacle to growth of small and

medium enterprises.

According to Pfeiffer (as cited in Omolo, 2015) the organization’s competitive success

is attained through people. Skills and performance of people are therefore critical

(Omolo, 2015). Moreover, financial incentives and training for the development of

employees have effective impact on growth (Antoncic and Antoncic (2011).

 35

The research of Hampel-Milagrosa et al. (2015) unravelled growth in MSMEs which

spend more on research and development. R&D is a systematic activity combining both

basic and applied research and aimed at discovering solutions to problems or creating

new goods or knowledge.

Jebna & Baharudin (2013) unravelled that customer satisfaction is business success

indicator. It is the degree of contentment provided by the goods or services of a company

as measured by the number of repeat customers.

The bigger a business gets, the more likely that it will survive and then thrive. Risk

decreases as business become larger because larger enterprises accumulate resources,

using them to support continuing innovation as well as beat or buy new competitors

(Schramm, 2018).

2.3.3 NETWORKS

Inter-firm and interpersonal networking play an important role in the process of

enterprise creation and growth (Hampel-Milagrosa, et al. 2015). Social networks are

important for getting access to finance, advice, know-how, emotional support and

connections. Wiese (2014) found that MSMEs tend to be more sustainable when they

cooperate with other businesses, share technologies and form networking opportunities.

Membership in trade association or chamber contributes to MSMEs upgrading

according to Hampel-Milagrosa et al. 2015). Arregle et al. (2013) pointed out the benefits

of family emotional support for business growth. This was corroborated by the research

of Hampel-Milagrosa (2014) that family and friends, word of mouth and

recommendations from satisfied customers contribute to sustained growth. Beekman and

Robinson (as cited in Machado, 2016) found that firm growth is related positively to
 36

maintaining or to expanding relationships with suppliers. Estrella and Bataglia (as cited

in Machado, 2016) uncovered that networks and alliances involving universities

influence growth in innovation sectors in their analysis on Brazilian industries of health

biotechnology.

2.3.4 BUSINESS ENVIRONMENT

The established environment is a vital contributing factor of entrepreneurs’ innovative

behaviour. An efficacious system of innovation and a nurturing institutional environment

is necessary to propel innovation. There is a necessity for government support for

innovation. Enhancements in the environment for doing business, research and

development assistance, provision of risk and venture capital, developing technical and

managerial education, making better the infrastructure, and active public–private

partnerships can be the interventions or support the government can provide (Szirmai,

Goedhuys & Naude, 2011). Schoonjans et al. (2013) identified that public policies and

support programs for firms within the political and governmental sphere may contribute

towards growth.

The age of the firm influences sustainability (Teruel-Carruzosa, 2010). The effect

of age on the growth was the result of the learning process and accumulated experience.

According to Davidsson, Achtenhagen and Naldi (2010) enterprises are weaker during

their first years and size proved to be dependent on age.

2.4 BUSINESS SUSTAINABILITY

Business sustainability (University of Wisconsin Sustainable Management) is the

management and collaboration of environmental, social and financial demands and

concerns to make certain responsible, ethical and enduring success. The concept is a new
 37

awareness which is a departure from the traditional concept which evaluates business

activities in terms of the short-term effect on profits. The framework is called the triple

bottom line. Traditionally, business was concerned with the monetary profits but today

business establishments have begun to focus on sustainability. The triple bottom line

theory makes more extensive the traditional accounting structure to encompass two other

performance areas, the social and environmental impacts on the enterprise. The three

bottom lines are denoted as people, planet, and profit. The “people” component

considers how the business provides benefits to the employees and society as a whole. A

triple bottom line firm gives fair remuneration and provides humane working conditions

to its employees and make an effort to contribute to the community’s development. The

“planet” part of the triple bottom line points out that an organization endeavours to

reduce the adverse ecological effects of the business activities and processes as much as

possible. These endeavours involve waste reduction, investment in renewable energy, and

improvement in natural resources management. The “profit” fragment of the triple

bottom line looks at the financial performance of the business. Sustainable organizations

integrate these three components to measure entrepreneurial success.

According to Quinn, McAdam & Dunn (2014) the sustainable development of

small food producers has obvious implications in the development of rural economies.

Micro, small and medium food enterprises play a part in the infrastructure of the local

rural community and the growth of a local food culture and local food products.

Hart and Ahuja found (as cited in Soyka, 2012) that implementing pollution

prevention strategies by manufacturing, mining firms that were members of the Standard

& Poor’s (S&P) 500 had a positive and statistically significant effect on the firm’s return
 38

on assets, return on sales, and return on equity. Moreover, Russo and Fouts (as cited in

Soyka, 2012) reported that in their study, return on assets of the firms they have

investigated increased as a function of improved environmental performance.

El Ghoul, Guedhami, Kwok and Mishra (2011) found that investments in improving

responsible employee relations, environmental policy/performance and product

characteristics substantially contributed to reducing firm’s cost of equity.

A study on the factors determining the sustainability of selected small and medium-

sized enterprises in South Africa was conducted by Wiese (2014). The study revealed that

the sustainability factors include communication skills, experience of owners or

managers, service delivery, securing relationships with clients, resource and finance

availability, good financial skills/knowledge, establishment of clear goals, internet

connectivity, and networking.

Also, Mendoza (2015) analyzed the financial performance of selected micro, small,

and medium enterprises in the Philippines using secondary data from financial statements

in 2012, 2013 and 2014. The results showed the enterprises performed favorably in

liquidity, activity and leverage but suffered from a low-level profitability. Mendoza

recommended that MSMEs should revisit their strategies for improving profitability and

use financial performance information in making critical decisions. MSMEs should

connect financial performance to the larger external environment of the business so that

these enterprises will continue to play an important role in the growth of the economy.

Jebna and Baharudin (2013) made a research on factors affecting small and medium

enterprises in Malaysia. Their study unravelled that customer satisfaction, service

quality, experience, expanding, and amount of sales and revenue are business success
 39

indicators. The researches recommended that a study should be carried out to investigate

the impact of these different factors on business success and develop a model that

determines business success. This model, according to them can then be applied by small

and medium enterprises to lessen the death rate of small and medium enterprises in

Malaysia. Carrying out studies to understand the factors that direct to business success

are necessary to stay away from failure. Cash flow management is important to maintain

and achieve success. Business should make sure that they have sufficient cash to pay

their suppliers and cover their expenditures. Business owners and managers should be

cognizant of the relevance of customer satisfaction and experience in order to boost their

businesses’ performance to achieve success. Owners should be required experience

before establishing their business in order to make certain a better chance of success.

Would-be business founders could work in other firms in order to gain experience

needed.

According to Ramukamba (2013) the small and medium enterprises economy in South

Africa is predominantly stagnant. Efforts have been accomplished to improve the

MSMEs but it is still a long way from the purposive, wealth-and-job creating growth that

the country despairingly needs. The success of small and medium enterprises is

important to the employment creation and poverty alleviation which are major challenges

in South Africa. They proposed that small and medium enterprises should make effort to

attract repeat customers, improve product performance, and to generate enough cash.

De Vera (2012) conducted an evaluation of the micro, small and medium enterprises

that went through the University of the Philippines Institute for Small-Scale Industries
 40

(UP ISSI) Integrated Plant Surveys for the period 2006-2011. His study identified the

following problems:

 Limited advertisement or promotion of the product as a leading marketing

problem. Other problems include deficient marketing strategy, absence or

deficiency of sales forecasts and plans, inferior packaging and depending on a few

customers or having a limited network of clients;

 Constrained quality control related to production. Poor ventilation, poor working

conditions, inept production plan, susceptibleness to fire and other accidents,

inadequate plant layout;

 Lack of job evaluation. Other organization related problems include absence of

organizational chart, implicit job descriptions for the workers, poor management,

lack of productivity or efficiency, incompetent employees;

 Poor accounting records and the lack of budget plans.

The best practices and coping mechanisms were identified as follows:

 A number of firms are exporting their products to the United States, Japan, the

Middle East and some European countries;

 Use of the Internet/social media to reach out to their customers;

 relying on only one large customer as their market;

 have participated in the government-sponsored trade fairs or exhibits;

 Have joined the government-sponsored training programs to enhance the training

of their employees;

 Have qualified and accredited to certain international standards for product

quality such as ISO 9001:2000, ISO 9002 and ISO 14001:2004;

 41

 Recognized by the government agencies for product excellence and people

development;

 Undergone research and development to improve processing of goods;

 Have accessed a loan from the Development Bank of the Philippines to finance its

trade mission in an international fair;

 Availed of DOST’s Small Enterprise Technology Program where the firm was

able to get a loan to upgrade the machines used in production.

Hampel-Milagrosa et al. (2013) found that in the three countries (Egypt, India and

Philippines) where they investigated the factors that determined the upgrading of

MSMEs, upgrading entailed a combination of success factors. According to their study,

the MSMEs in these countries were beset with different challenges that must be dealt

with concurrently to upgrade. MSMEs employed different options to deal with the

challenges. The course of action in which MSMEs combined solutions for each of the

challenges depended on strongly on their context or circumstances, because the success

factors differed from one sector and country to the other.

Racelis (2014) proposed a theoretical framework based on literature review on

sustainable entrepreneurship in Asia. According to the researcher, one of the first steps in

entrepreneurial training and maturity in the area of sustainability is to develop models for

sustainability communication and reporting. The author added two domains namely the

cultural and ethical to the Triple Bottom Line framework (the economic, social, and

ecological domain).

Another research was done by Ocampo and Ocampo (2015). The authors also

proposed a framework in formulating a sustainable manufacturing strategy which is

 42

grounded on sustainability without disregarding the internal and external competitive

functions of manufacturing. The framework developed provided significant and

interesting insights: the sustainable manufacturing strategy has its foundation on

supporting the competitive advantage of the firm, the framework extends the traditionally

market-perspective of strategy to a holistic approach which incorporates the interests of

stakeholders to address sustainability, stakeholder’s interests are not independent but are

allowed to interact, the framework explores the impact of firm size and strategic

responses of manufacturing on sustainability, provides an opportunity to explore the

relationship of competitive strategies and decision areas and the framework is able to

formulate a sustainable manufacturing strategy that is grounded on manufacturing

strategy and sustainable manufacturing.

2.5 SYNTHESIS

A number of researches have investigated MSMEs. In the Philippines, one of the

government agencies mandated to look into the welfare of the MSMEs is the Department

of Trade and Industry. DTI keeps rich data and information about MSMEs much of

which are used in this study. Machado (2016) reviewed strands of literature on growth of

small businesses. Many more studies have generously contributed to this perusal of

business growth, enterprise upgrading and sustainability.

The studies of various researchers reviewed in this study have identified a gamut of

success factors and challenges of MSMEs. The success factors could be grouped into four

factors: entrepreneurial characteristics, enterprise characteristics, networks and business

 43

environment. These factors were used in this study as independent variables to determine

the level and influence of sustainability (the dependent variable) of manufacturing

MSMEs in SOCSARGEN as this study used the Multiple Regression Analysis. The

variables: entrepreneurial characteristics, enterprise characteristics, networks and

business environment are predictor variables for sustainability of manufacturing MSMEs

in SOCSARGEN.

A number of studies have covered about sustainability adoption. These studies have

shown the positive impact of improving responsible employee relations, environmental

policy/performance on the return on assets and return on equity of the enterprise.

Recent studies are developing sustainability framework in the Philippine setting

adding more dimensions to the three bottom line framework of Elkington: the cultural

and ethical (Racelis, 2014). The researcher adopted the triple bottom line (the 3p’s:

people, profit and planet) framework and have integrated the cultural and ethical issues in

this study.
 CHAPTER III

METHODOLOGY

3.1 Research Design

This study is descriptive and correlational in design using descriptive statistics and

multiple regression analysis to analyse the information. The descriptive research gives an

account, elucidation, illustration and interpretation of what exists. This requires the

collection of data that will provide information of the description of situations,

individuals or groups. The survey questionnaire was the primary data gathering

instrument in this study to describe the profile of the manufacturing MSMEs in

SOCSARGEN in terms of the enterprise and the entrepreneur, and the level of influence

of entrepreneurial characteristics, enterprise characteristics, networks and business

environment to the sustainability of manufacturing MSMEs in SOCSARGEN. The

correlational research illustrates the relationship between two or more quantitative

variables. The correlational analysis determines whether a relationship or association

exists between the entrepreneurial characteristics, enterprise characteristics, networks,

business environment and sustainability of manufacturing MSMEs in SOCSARGEN.

The study was conducted in South Cotabato, Sarangani Province and General Santos

City (SOCSARGEN). SOCSARGEN is a region in Southern Mindanao, Philippines.

 45

3.2 Units of Analysis

The research examined the relationship of the independent variables: entrepreneurial

characteristics, enterprise characteristics, networks, and business environment and the

dependent variable sustainability of manufacturing MSMEs in SOCSARGEN. The

research also investigated the moderating effect of firm age in the sustainability of

manufacturing MSMEs in SOCSARGEN.

This research used a 5-point Likert scale treated as interval scale, the distance between

any two values from 1 to 5 is equal (0.80) computed as the lowest (1) minus the highest

(5) divided by highest (5):

( 1-5)/5 = -0.80

Table 3. 1 Description of the Rating Scale

Rating Response Anchor Mean Score Range
From To
5 Strongly agree 4.21 5.00
4 Agree 3.41 4.20
3 Somewhat agree 2.61 3.40
2 Disagree 1.81 2.60
1 Strongly disagree 1.00 1.80

Table 3.1 shows the measurement response anchors (Vagias, 2006) for the

independent variables: entrepreneurial characteristics, enterprise characteristics,

networks, and business environment and dependent variable sustainability of

manufacturing MSMEs in SOCSARGEN.

With interval scale, the mean or weighted mean of the responses were used as the

input values of the variables in the Multiple Regression Analysis.

 46

3.2.1 Sample Size

The sample size was computed using the Slovin’s formula:

n = N/(1+Ne2)

where:

n is the sample size (target number of respondents)

N is the population size (the number of manufacturing MSMEs in SOCSARGEN

taken from the lists of establishments registered in 2018 provided by the Business

Permits and Licensing Division of the local government in SOCSARGEN)

Computing for the sample size: 799/(1+799*.052) = 267

With the population size (number of manufacturing MSMEs in SOCSARGEN of 799,

the Slovin’s formula calculated the number of 267 samples. Allowing for a 20% non-

response from the target respondents, the target number of respondents are 320: 267 *

1.20 = 320.

3.2.2 Sample Technique

Table 3. 2 Sampling distribution of manufacturing MSMEs in SOCSARGEN.

Location Number of Percent Slovin’s 20% Targeted Actual Percent

Manufacturing Sample Allowance Number of Number of
MSMEs Size for non- Respondents Respondents
response

South 237 29.66 80 16 96 95 31.07

Cotabato

Sarangani 31 3.88 10 2 12 13 4.21

Province

General 531 66.46 177 35 212 201 64.72

Santos
City

Total 799 100.00 267 53 320 309 100.00

 47

The distribution of the samples was developed by dividing the number of

manufacturing MSMEs per location by the total manufacturing MSMEs in

SOCSARGEN. For South Cotabato the 29.66% was derived by dividing 237 by 799.

The 3.88% for the Sarangani Province was computed 31 divided by 799. The allocation

for General Santos City which is 66.46% was determined by dividing 531 by 799.

3.2.3 Research Instrument

A self-structured questionnaire as instrument for collecting the data was used in this

study. It is an apt methodology for this research work as this study is designed as a

descriptive and correlational. The questionnaire covered demographic variables of

MSMEs in SOCSARGEN such as the location, products, firm age, form of organization,

value of assets, number of employees, entrepreneurs’ information about their age, gender,

education, training, business experience and firm management. The questionnaire also

covered perceptions on sustainability. The research instrument was subjected to validity

and reliability tests.

The research instrument was validated by three professionals with doctorate degrees

holding key positions in their organizations as corporate finance officer of a group of

companies, finance officer of a university and a university professor. The average score

of 4.71 (Please see Appendix E Questionnaire Validation Result) interpreted as very good

was rated by the validators.

The reliability of the instrument measured using Cronbach’s alpha was pretested with

30 samples which were not included in the actual respondents and were gathered

randomly. There were 20 samples from General Santos City and 10 from South Cotabato.

In terms of products, 20 manufacturing MSMEs were engaged in food manufacturing

 48

producing bread, cakes, fruit cider, processed meats, processed fruits, processed cow’s

milk, peanut butter, fruit jams, chips, and purifying water while 10 manufacturing

MSMEs were into non-food items like furniture, potteries, sculpture, and hollow blocks

making.

Cronbach’s apha is an internal consistency or reliability measure of a set of test items.

The reliability of any given measurement point out to the degree to which it is a

consistent measure of a concept. The SPSS Version 22 was used to analyse the data. The

Cronbach’s alpha on the 30 samples was 0.938 (Please refer to Appendix F Reliability

Testing: Pre-test Result). The Cronbach’s alpha coefficient ranges from 0 to 1. The

higher the coefficient the more the items have shared and probably have measured the

same underlying concept. Minimum coefficient between 0.65 and 0.80 or higher is

recommended by methodologists. Coefficients that are less than 0.5 are unacceptable

(Goforth, 2016).

3.3 Data Collection Method

The data used in this study were gathered using survey questionnaire. The researcher

conducted the data gathering with the assistance of the 58 out of 66 graduating Bachelor

of Science in Accountancy students from Mindanao State University General Santos City

as enumerators. The enumerators were supervised by the researcher in the data gathering

activities. The researcher likewise sought the help of the DTI offices in South Cotabato,

Sarangani Province and General Santos City in the data collection. DTI General Santos

City and South Cotabato committed to help the researcher with 20 and 15 manufacturing

MSMEs respectively, while the DTI Sarangani Province assisted to facilitate by

coordinating with the manufacturing MSMEs they are supporting.

 49

Most of the data collected were done face to face with the respondents. There was no

problem in communicating to the respondents in English as most of them went through

college. There were only few respondents who needed the questions translated into native

dialects such as Cebuano and Iloggo.

There were instances when the questionnaires were retrieved some later time because

the respondents requested to attend to answering the questionnaire some other time due to

a busy schedule.

3.4 Statistical Treatment

The statistical treatment of the study is summarized in Table 3.4. The table shows the

statistical treatment of the variables for each statement of the problem.

Table 3. 3 Summary of Statistical Treatment of the Study.

Statement of the Problem Statistical Treatment Variables

1. What is the profile of the

manufacturing MSMEs in Descriptive: Measures of Demographic Variables
SOCSARGEN? Central Tendency

2. What is the profile of Descriptive: Measures of Demographic Variables

entrepreneurs in Central Tendency
manufacturing MSMEs in
SOCSARGEN?

3. What is the level of

influence of Descriptive: Measures of Independent Variables
entrepreneurial Central Tendency (Mean)
characteristics, enterprise
characteristics, networks
and business environment
to the sustainability of
manufacturing MSMEs in
SOCSARGEN?

4. Which independent
variable/s (entrepreneurial Inferential: Multiple Independent Variables
characteristics, enterprise Regression Analysis Dependent Variable
characteristics, networks (Stepwise)
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Statement of the Problem Statistical Treatment Variables

and business environment

significantly influence the
sustainability of
manufacturing MSMEs in
SOCSARGEN?
6. 5. Does firm age moderate Inferential: Dr. Hayes’ Moderating Variable
the relationship between PROCESS tool and/or Independent Variables
entrepreneurial Hierarchical Regression Dependent Variable
characteristics, enterprise
characteristics, networks
and business environment
taken together and
sustainability of
manufacturing MSMEs in
SOCSARGEN?

The gathered data were analysed using the Descriptive Statistics and Multiple

Regression Analysis in the Statistical Package for the Social Science (SPSS) Version 22.

SPSS is one of the most popular statistical packages which can perform highly complex

data manipulation and analysis.

Ethical Consideration

High ethical standards was strictly adhered to in the conduct of this research study.

The voluntary participation of the respondents was requested before asking the

respondents to answer the questionnaire. The purpose of the research study was explained

to them and they were allowed to withdraw from their participation in any stage of the

research process. The respondents’ identity would be kept anonymous and their personal

information would be held confidential.

The researcher also ensured that offensive language would be totally avoided in the

questionnaire and during the interview/survey. Furthermore, the researcher cited the
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authors of books, journals and other references to give credit to the sources of

information relevant to this research study.

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