MODULE 3

Definitions of Management

Many management experts have tried to define management.

But, no definition of management has been universally accepted.
Let us discuss some of the leading definitions of management:

o Peter F. Drucker defines, "management is an organ; organs can

be described and defined only through their functions."

o According to Terry, "Management is not people; it is an

activity like walking, reading, swimming or running. People
who perform Management can be designated as members, members
of Management or executive leaders."

o Ralph C. Davis has defined Management as, "Management is the

function of executive leadership anywhere."

o According to Mc Farland, "Management is defined for

conceptual, theoretical and analytical purposes as that
process by which managers create, direct, maintain and
operate purposive organization through systematic, coordinated
co-operative human effort."

o Henry Fayol, "To manage is to forecast and plan, to organize,

to compound, to co-ordinate and to control."

o Harold Koontz says, "Management is the art of getting things

done through and within formally organized group."

o William Spriegal, "Management is that function of an

enterprise which concerns itself with direction and control
of the various activities to attain business objectives.
Management is essentially an executive function; it deals
with the active direction of the human effort."

o Kimball and Kimball, "Management embraces all duties and

functions that pertain to the initiation of an enterprise,
its financing, the establishment of all major policies, the
provision of all necessary equipment, the outlining of the
general form of organization under which the enterprise is to
operate and the selection of the principal officers."

o Sir Charles Reynold, "Management is the process of getting

things done through the agency of a community. The functions
of management are the handling of community with a view of
fulfilling the purposes for which it exists."
o E.F.L. Brech, "Management is concerned with seeing that the
job gets done, its tasks all centre on planning and guiding
the operations that are going on in the enterprise."
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o Koontz and O'Donnel, "Management is the creation and

maintenance of an internal environment in an enterprise where
individuals, working in groups, can perform efficiently and
effectively toward the attainment of group goals. It is the
art of getting the work done through and with people in
formally organized groups."

o James Lundy, "Management is principally a task of planning,

coordinating, motivating and controlling the efforts of other
towards a specific objective. It involves the combining of
the traditional factors of production land, labour, capital
in an optimum manner, paying due attention, of course, to the
particular goals of the organization."

o Wheeler, "Management is centered in the administrators or

managers of the firm who integrate men, material and money
into an effective operating limit."

o J.N. Schulze, "Management is the force which leads guides and

directs an organization in the accomplishment of a predetermined
object."

o Oliver Scheldon, "Management proper is the function in

industry concerned in the execution of policy, within the
limits set up by the administration and the employment of the
organization for the particular objectives set before it."

o Keith and Gubellini, "Management is the force that integrates

men and physical plant into an effective operating unit."

o Newman, Summer and Warren, "The job of Management is to make

co-operative endeavour to function properly. A manager is one
who gets things done by working with people and other
resources in order to reach an objective."

o G.E. Milward, "Management is the process and the agency

through which the execution of policy is planned and
supervised."
o Ordway Tead, "Management is the process and agency which
directs and guides the operations of an organization in the
realizing of established aims."

o Mary Parker Follett defines management as the "art of getting

things done through people". This definition calls attention
to the fundamental difference between manager and other
personnel of an organization. A manager is one who contributes
to the organization’s goals indirectly by directing the
efforts of others – not by performing the task himself. On
the other hand, a person who is not a manager makes his
contribution to the organization’s goals directly by
performing the task himself.
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o George R. Terry. He defines management as a process
"consisting of planning, organizing, actuating and
controlling, performed to determine and accomplish the
objectives by the use of people and other resources".

According to this definition, management is a process – a

systematic way of doing things. The four management
activities included in this process are: planning,
organizing, actuating and controlling.

Characteristics of Management

Management is a distinct activity having the following

salient features:
1. Economic Resource. Management is one of the factors of production
together with land, labour and capital. As industrialization
increases, the need for managers also increases. Efficient
management is the most critical input in the success of any
organized group activity as it is the force which assembles and
integrates other factors of production, namely, labour, capital
and materials. Inputs of labour, capital and materials do not by
themselves ensure production; they require the catalyst of
management to produce goods and services required by the society.
Thus, management is an essential ingredient of an organization.

2. Goal Oriented. Management is a purposeful activity. It coordinates

the efforts of workers to achieve the goals of the organization.
The success of management is measured by the extent to which the
organizational goals are achieved. It is imperative that the
organizational goals must be well-defined and properly understood
by the management at various levels.

3. Distinct Process. Management is a distinct process consisting of

such functions as planning, organizing, staffing, directing and
controlling. These functions are so interwoven that it is not
possible to lay down exactly the sequence of various functions or
their relative significance.

4. Integrative Force. The essence of management is integration of

human and other resources to achieve the desired objectives. All
these resources are made available to those who manage. Managers
apply knowledge, experience and management principles for getting
the results from the workers by the use of non-human resources.
Managers also seek to harmonize the individuals' goals with the
organizational goals for the smooth working of the organization.

5. System of Authority. Management as a team of managers represents a

system of authority, a hierarchy of command and control. Managers
at different levels possess varying degree of authority. Generally,
5
as we move down in the managerial hierarchy, the degree of authority
gets gradually reduced. Authority enables the managers to perform
their functions effectively.

6. Multi-disciplinary Subject. Management has grown as a field of

study (i.e. discipline) taking the help of so many other
disciplines such as engineering, anthropology, sociology and
psychology. Much of the management literature is the result of the
association of these disciplines. For instance, productivity
orientation drew its inspiration from industrial engineering and
human relations orientation from psychology. Similarly, sociology
and operations research have also contributed to the development
of management science.

7. Universal Application. Management is universal in character. The

principles and techniques of management are equally applicable in
the fields of business, education, military, government and
hospital. Henri Fayol suggested that principles of management would
apply more or less in every situation. The principles are working
guidelines which are flexible and capable of adaptation to every
organization where the efforts of human beings are to be
coordinated.

Principles of Management

HENRY FAYOL developed a body of principles of management.

He is also considered as the father of modern management.
Fayol held that there is a single "administrative science",
whose principles can be used in all management situations no matter
what kind of organization was being managed. This earned him the
title of "Universality". He, however, emphasized that his
principles were not immutable laws but rules of thumb to be used
as occasion demanded.
Fayol held that activities of an industrial enterprise can
be grouped in six categories: (i) technical (production), (ii)
commercial (buying, selling and exchange), (iii) financial (search
for and optimum use of capital), (iv) security (protection of
property and persons), (v) accounting (including statistics); and
(vi) managerial. However, he devoted most of his attention to
managerial activity. He developed the following principles
underlying management of all kinds of organizations:

o Authority and Responsibility are related. Fayol held that

authority flows from responsibility. Managers who exercise
authority over others should assume responsibility for
decisions as well as for results. He regarded authority as a
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corollary to responsibility. Authority is official as well as
personal. Official authority is derived from the manager's
position in organizational hierarchy and personal authority
is compounded of intelligence, experience, moral worth, past
services, etc.

o Unity of Command. This principle holds that one employee

should have only one boss and receive instructions from him
only. Fayol observed that if this principle is violated
authority will be undermined, discipline will be jeopardy,
order will be disturbed and stability will be threatened.
Dual command is a permanent source of conflict.

o Unity of Direction. This means that all managerial and

operational activities which relate a distinct group with the
same objective should be directed by "one head and one plan.
According to Fayol, there should be, "one head and one plan
for a group of activities having the same objective".

o Scalar Chain of Command. According to Fayol scalar chain is

the chain of superiors ranging from the ultimate authority to
the lowest ranks. The line of authority is the route followed
via every link in the chain by all communication which start
from or go to the ultimate authority.

o Division of Work. This is the principle of specialization

which, according to Fayol, applies to all kinds of work,
managerial as well as technical. It helps a person to acquire
an ability and accuracy with which he can do more and better
work with the same effort. Therefore, the work of every person
in the organization should be limited as far as possible to
the performance of a single leading function.
o Discipline. Discipline is a sine qua non for the proper
functioning of an organization. Members of an organization
are required to perform their functions and conduct
themselves in relation to others according to rules, norms
and customs. According to Fayol, discipline can best be
maintained by: (i) having good superiors at all levels; (ii)
agreements (made either with the individual employees or with
a union as the case may be) that are as clear and fair as
possible; and (iii) penalties judiciously imposed.

o Subordination of Individual Interest to General Interest. The

interest of the organization is above the interests of the
individual and the group. It can be achieved only when
managers in high positions in the organization set an example
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of honesty, integrity, fairness and justice. It will involve
an attitude and a spirit of sacrificing their own personal
interests whenever it becomes apparent that such personal
interests are in conflict with organizational interests.

o Remuneration. Employees should be paid fairly and equitably.

Differentials in remuneration should be based on job
differentials, in terms of qualities of the employee,
application, responsibility, working conditions and
difficulty of the job. It should also take into account
factors like cost of living, general economic conditions, and
demand for labor and economic state of the business.

o Centralization. Fayol believed in centralization. He,

however, did not contemplate concentration of all decision
making authority in the top management. He, however, held
that centralization and decentralization is a question of
proportion. In a small firm with a limited number of
employees, the owner-manager can give orders directly to
everyone. In large organizations, however, where the worker
is separated from the chief executive through a long scalar
chain, the decision making authority has to be distributed
among various managers in varying degrees. Here one generally
comes across a situation of decentralization with centralized
control. The degree of centralization and decentralization
also depends on the quality of managers.

o Order. Order, in the conception of Fayol, means right person

on the right job and everything in its proper place. This
kind of order depends on precise knowledge of human
requirements and resources of the concern and a constant
balance between these requirements and resources.
o Equity. It means that subordinates should be treated with
justice and kindliness. This is essential for eliciting their
devotion and loyalty to the enterprise. It is, therefore the
duty of the chief executive to instill a sense of equity
throughout all levels of scalar chain.

o Stability of Tenure of Personnel. The managerial policies

should provide a sense of reasonable job security. The hiring
and firing of personnel should depend not on the whims of the
superiors but on the well-conceived personnel policies. He
points out that it takes time for an employee to learn his
job; if they quit or are discharged within a short time, the
learning time has been wasted. At the same time those found
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unsuitable should be removed and those who are found to be
competent should be promoted.

o Initiative. It focuses on the ability, attitude and

resourcefulness to act without prompting from others.
Managers must create an environment which encourages their
subordinates to take initiative and responsibility. Since it
provides a sense of great satisfaction to intelligent
employees, managers should sacrifice their personal vanity in
order to encourage their subordinates to show initiative.

o Esprit de Corps. Cohesiveness and team spirit should be

encouraged among employees. It is one of the chief
characteristics of organized activity that a number of people
work together in close cooperation for the achievement of
common goals. An environment should be created in the
organization which will induce people to contribute to each
other's efforts in such a way that the combined effort of all
together promotes the achievement of the overall objectives
of enterprise

Significance of Management and the Roles of Manager

Management is concerned with acquiring maximum prosperity

with a minimum effort. Management is essential wherever group
efforts are required to be directed towards achievement of common
goals.

The Significance of Management

o Achievements of group goals. Management makes group efforts
more effective. The group as a whole cannot realize its
objectives unless and until there is mutual co-operation and
co-ordination among the members of the group. Management
creates team work and team spirit in an organization by
developing a sound organization structure. It brings the
human and material resources together and motivates the
people for the achievement of the goals of the organization.

o Optimum utilization of resources. Management always

concentrates on achieving the objectives of the enterprise.
The available resources of production are put to use in such
a way that all sort of wastage and inefficiencies are reduced
to a minimum. Workers are motivated to put in their best
performance by the inspiring leadership.
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o Minimization of cost. In the modern era of intense
competition, every business enterprise must minimize the cost
of production and distribution. Only those concerns can
survive in the market, which can produce goods of better
quality at the minimum cost.

o Change and Growth. A business enterprise operates in a

constantly changing environment. Changes in business
environment create uncertainties and risk and also produce
opportunities for growth. An enterprise has to change and
adjust itself in the ever-changing environment.

o Efficient and smooth running of business. Management ensures

efficient and smooth running of business, through better
planning, sound organization and effective control of the
various factors of production.

o Higher profits. Profits can be enhanced in any enterprise

either by increasing the sales revenue or reducing costs. To
increase the sales revenue is beyond the control of an
enterprise. Management by decreasing costs increases its
profits and thus provides opportunities for future growth and
development.

o Provide innovation. Management gives new ideas, imagination

and visions to an enterprise.

o Social benefits. Management is useful not only to the business

firms but to the society as a whole. It improves the standard
of living of the people through higher production and more
efficient use of scarce resources. By establishing cordial
relations between different social groups, management
promotes peace and prosperity in society.

o Useful for developing countries. Management has to play a

more important role in developing countries, like India. In
such countries, the productivity is low and the resources are
limited. It has been rightly observed, "There are no underdeveloped
countries. They are only under-managed ones".

o Sound organization structure. Management establishes proper

organization structure and avoids conflict between the
superiors and subordinates. This helps in the development of
spirit of cooperation and mutual understanding, and a
congenial environment is provided in the organization.

Roles of Manager
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Management performs the functions of planning, organizing,
staffing, directing and controlling for the accomplishment of
organizational goals. Any person who performs these functions is
a manager. The first line manager or supervisor or foreman is also
a manager because he performs these functions.
 Management of ideas implies use of conceptual skills.
 Management of things (non-human resources) deal with the
design of production system, and acquisition, allocation and
conversion of physical resources to achieve certain goals.
 Management of people is concerned with procurement,
development, maintenance and integration of human resources
in the organization. Every manager has to direct his
subordinates to put the organizational plans into practice.

Role Performed by Managers

1. Interpersonal Roles
o Figurehead. In this role, every manager has to perform
some duties of a ceremonial nature, such as greeting the
touring dignitaries, attending the wedding of an
employee, taking an important customer to lunch and so
on.
o Leader. As a leader, every manager must motivate and
encourage his employees. He must also try to reconcile
their individual needs with the goals of the
organization.
o Liaison. In this role of liaison, every manager must
cultivate contacts outside his vertical chain of command
to collect information useful for his organization.
2. Informational Roles
o Monitor. As monitor, the manager has to perpetually scan
his environment for information, interrogate his liaison
contacts and his subordinates, and receive unsolicited
information, much of it as result of the network of
personal contacts he has developed.
o Disseminator. In the role of a disseminator, the manager
passes some of his privileged information directly to
his subordinates who would otherwise have no access to
it.
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o Spokesman. In this role, the manager informs and
satisfies various groups and people who influence his
organization. Thus, he advises shareholders about
financial performance, assures consumer groups that the
organization is fulfilling its social responsibilities
and satisfies government that the origination is abiding
by the law.
3. Decisional Roles
o Entrepreneur. In this role, the manager constantly looks
out for new ideas and seeks to improve his unit by
adapting it to changing conditions in the environment.
o Disturbance Handler. In this role, the manager has to
work like a fire fighter. He must seek solutions of
various unanticipated problems – a strike may loom large
a major customer may go bankrupt; a supplier may renege
on his contract, and so on.
o Resource Allocator. In this role, the manager must
divide work and delegate authority among his
subordinates. He must decide who will get what.
o Negotiator. The manager has to spend considerable time
in negotiations. Thus, the chairman of a company may
negotiate with the union leaders a new strike issue, the
foreman may negotiate with the workers a grievance
problem, and so on.
In addition, managers in any organization work with
each other to establish the organization’s long-range
goals and to plan how to achieve them. They also work
together to provide one another with the accurate
information needed to perform tasks. Thus, managers act
as channels of communication with the organization.
Levels of Management
Levels of management refer to a line of demarcation between
various managerial positions in an enterprise. The levels of
management depend upon its size, technical facilities, and the
range of production.
Two broad levels of management
1. Administrative management (i.e., the upper level of
management). It is concerned with "thinking" functions such
as laying down policy, planning and setting up of standards.
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2. Operating management (i.e., the lower level of management).
It is concerned with the "doing" function such as
implementation of policies, and directing the operations to
attain the objectives of the enterprise.
A. Top management of a company consists of owners/shareholders,
Board of Directors, its Chairman, Managing Director, or the
Chief Executive, or the General Manager or Executive
Committee having key officers.
Top management is the ultimate source of authority and
it lays down goals, policies and plans for the enterprise. It
devotes more time on planning and coordinating functions. It
is accountable to the owners of the business of the overall
management. It is also described as the policy making group
responsible for the overall direction and success of all
company activities.
The important functions of top management include:
o To establish the objectives or goals of the enterprise.
o To make policies and frame plans to attain the objectives
laid.
o To set up an organizational frame work to conduct the
operations as per plans.
o To assemble the resources of money, men, materials, machines
and methods to put the plans into action.
o To exercise effective control of the operations.
o To provide overall leadership to the enterprise.
B. Middle management of a company consists of heads of functional
departments viz. Purchase Manager, Production Manager,
Marketing Manager, Financial controller, etc. and Divisional
and Sectional Officers working under these Functional Heads.
The job of middle management is to implement the policies
and plans framed by the top management. It serves as an
essential link between the top management and the lower level
or operative management. They are responsible to the top
management for the functioning of their departments. They
devote more time on the organization and motivation functions
of management. They provide the guidance and the structure
for a purposeful enterprise. Without them the top
management's plans and ambitious expectations will not be
fruitfully realized.
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The following are the main functions of middle
management:
o To interpret the policies chalked out by top management.
o To prepare the organizational set up in their own departments
for fulfilling the objectives implied in various business
policies.
o To recruit and select suitable operative and supervisory
staff.
o To assign activities, duties and responsibilities for timely
implementation of the plans.
o To compile all the instructions and issue them to supervisor
under their control.
o To motivate personnel to attain higher productivity and to
reward them properly.
o To cooperate with the other departments for ensuring a smooth
functioning of the entire organization.
o To collect reports and information on performance in their
departments.
o To report to top management
o To make suitable recommendations to the top management for
the better execution of plans and policies.
C. Lower level or operative management of a company consists of
Superintendents, Foremen, Supervisors, sales officers,
accounts officers and so on etc.
Lower or operative management is placed at the bottom
of the hierarchy of management, and actual operations are the
responsibility of this level of management. They are in direct
touch with the rank and file or workers. Their authority and
responsibility is limited. They pass on the instructions of
the middle management to workers.
The following are the main functions of middle
management:
o Interpret and divide the plans of the management into shortrange
operating plans.
o Involved in the process of decisions-making.
o Get the work done through the workers.
o Allot various jobs to the workers, evaluate their performance
and report to the middle level management.
o Concerned with direction and control functions of management.
o Devote more time in the supervision of the workers.
Management Functions
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For our purpose, we shall designate the following six as the
functions of a manager: planning, organizing, staffing, directing,
coordinating and controlling.
1. Planning. Planning is the most fundamental and the most
pervasive of all management functions. If people working in
groups have to perform effectively, they should know in
advance what is to be done, what activities they have to
perform in order to do what is to be done, and when it is to
be done. Planning is concerned with 'what', 'how, and 'when'
of performance. It is deciding in the present about the future
objectives and the courses of action for their achievement.
It thus involves:
o Determination of long and short-range objectives;
o Development of strategies and courses of actions to be
followed for the achievement of these objectives; and
o Formulation of policies, procedures, and rules, etc.,
for the implementation of strategies, and plans.
2. Organizing. Organizing involves identification of activities
required for the achievement of enterprise objectives and
implementation of plans; grouping of activities into jobs;
assignment of these jobs and activities to departments and
individuals; delegation of responsibility and authority for
performance, and provision for vertical and horizontal
coordination of activities. Every manager has to decide what
activities have to be undertaken in his department or section
for the achievement of the goals entrusted to him. Having
identified the activities, he has to group identical or
similar activities in order to make jobs, assign these jobs
or groups of activities to his subordinates, delegate
authority to them so as to enable them to make decisions and
initiate action for undertaking these activities, and provide
for coordination between himself and his subordinates, and
among his subordinates.
Organizing thus involves the following sub-functions :
o Identification of activities required for the
achievement of objectives and implementation of plans.
o Grouping the activities so as to create self-contained
jobs.
o Assignment of jobs to employees.
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o Delegation of authority so as to enable them to perform
their jobs and to command the resources needed for their
performance.
o Establishment of a network of coordinating
relationships.
3. Staffing. Staffing is a continuous and vital function of
management. After the objectives have been determined,
strategies, policies, programmes, procedures and rules
formulated for their achievement, activities for the
implementation of strategies, policies, programmes, etc.
identified and grouped into jobs, the next logical step in
the management process is to procure suitable personnel for
manning the jobs. Since the efficiency and effectiveness of
an organization significantly depends on the quality of its
personnel and since it is one of the primary functions of
management to achieve qualified and trained people to fill
various positions, staffing has been recognized as a distinct
function of management.
It comprises several sub functions:
o Manpower planning involving determination of the number
and the kind of personnel required.
o Recruitment for attracting adequate number of potential
employees to seek jobs in the enterprise.
o Selection of the most suitable persons for the jobs under
consideration.
o Placement, induction and orientation.
o Transfers, promotions, termination and layoff.
o Training and development of employees.
4. Directing. Directing is the function of leading the employees
to perform efficiently, and contribute their optimum to the
achievement of organizational objectives. Jobs assigned to
subordinates have to be explained and clarified, they have to
be provided guidance in job performance and they are to be
motivated to contribute their optimum performance with zeal
and enthusiasm.
The function of directing thus involves the following
sub-functions:
o Communication
o Motivation
o Leadership
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5. Coordination. Coordinating is the function of establishing
such relationships among various parts of the organization
that they all together pull in the direction of organizational
objectives. It is thus the process of tying together all the
organizational decisions, operations, activities and efforts
so as to achieve unity of action for the accomplishment of
organizational objectives.
Coordination, as a management function, involves the
following sub-functions:
o Clear definition of authority-responsibility
relationships
o Unity of direction
o Unity of command
o Effective communication
o Effective leadership
6. Controlling. Controlling is the function of ensuring that
the divisional, departmental, sectional and individual
performances are consistent with the predetermined objectives
and goals. Deviations from objectives and plans have to be
identified and investigated, and correction action taken.
Deviations from plans and objectives provide feedback to
managers, and all other management processes including
planning, organizing, staffing, directing and coordinating
are continuously reviewed and modified, where necessary.
Thus, controlling involves the following process:
o Measurement of performance against predetermined goals.
o Identification of deviations from these goals.
o Corrective action to rectify deviations.

Republic of the Philippines

Isabela State University
COLLEGE OF EDUCATION
Roxas-Campus
SED INST. 3 ENTREPRENURIAL MANAGEMENT
MODULE 4
This chapter will describe the environment for small enterprises in the Philippines in terms of
laws, policies, programs and services. It will discuss the support provided by the government,
non-government sectors and international agencies to entrepreneurs and plan for MSME
development.
1
Chapter 4:
THE PHILIPPINE ENVIRONMENT FOR
ENTREPRENEURSHIP
Learning Outcomes:
At the end of the Chapter, the student should be able to:
1. Distinguish the different categories of enterprises according to amount
of assets and number of employees;
2. Understand the current state of the MSME development in the Philippines;
3. Learn the different plan and strategies for MSME development;
4. Identify the policies and specific laws affecting the growth and
development of small enterprises; and
5. Familiarize with the relevant points of the MSME Development Plan 2017-
2022.
Learning Content:
1. How are Enterprises Defined and Categorized?
2. The Situation of MSME Development in the Philippines
3. The Business Climate for MSME Development
4. Current Policies and Programs for MSME Sector
5. Salient Points of the MSME Development Plan 2017-2022
Learning Activities:
1. Explore entrepreneurship by searching existing Filipino-owned business
enterprises under each category.
2. Articulate the importance of each law and policy which supports
entrepreneurship.
3. Case study.
4. Conceptualize ideas on how to increase awareness of Filipinos to export
policies.
2
How are Enterprises Defined and Categorized?
Entrepreneurship is usually associated with small enterprises, although
you can also say that there are entrepreneurs who own large enterprises.
Now, you may ask, how will I know if an enterprise is small or large?
There are four categories of enterprises and these classifications apply
whether the firm is in the manufacturing, service or agribusiness, or whether
it is a sole proprietorship, partnership or corporation. These categories
are the following:
1. Micro
2. Small
3. Medium
4. Large
In this section, we will focus our discussions to micro, small, and
medium enterprises (MSMEs). The significance of MSME has long been recognized
by the government. This is because they play a very significant and important
part in a country's economic and social growth.
An MSME in the Philippines is described as any business activity or
undertaking engaged in industry, agribusiness and/or services having: (1) an
asset size (except land) of up to PhP100 million; and (2) an employment size
of less than 200 workers. Based on these types, it is graded as micro, small
or medium (Table 1), regardless of the form of ownership of the company
(i.e., single ownership, cooperative, partnership or corporation). The
Philippines Statistics Authority (PSA) classifies an enterprise as a micro
enterprise if it has less than 10 employees, small if it has 10-99 employees,
medium with 100-199 employees, and large if it has 200 or more employees. On
the other hand, the Small and Medium Enterprise Development Council (SMEDC)
uses asset size as its basis for classification.
Table 1 shows the classification of enterprises by asset size and number
of employees.
Table 1. Classification of Enterprises by Asset Size and No. of Employees
Category Asset Size No. of Employees
Micro ₱3 million or less 1 – 9
Small ₱3,000,001 to ₱15,000,000 10 - 99
Medium ₱15,000,001 to ₱100,000,000 100 - 199
Source: DTI SME Development Plan 2004-2010.
MSMEs are also classified based on numbers of establishments per sector.
In 2018, the Philippine Statistics Authority (PSA) recorded a total of
1,003,111 business enterprises operating in the country. Of these, 998,342
(99.52%) are MSMEs and 4,769 (0.48%) are large enterprises. Micro enterprises
constitute 88.45% (887,272) of total MSME establishments, followed by small
enterprises at 10.58% (106,175) and medium enterprises at 0.49% (4,895).
Table 2 shows the number of establishments by sector
3
Section Total Employment Grouping (MSME)
Micro Small Medium Large
Philippines
1,003,111
887,272
106,175
4,895
4,769
A - Agriculture, Forestry, and
Fishing
8,679
5,837
2,512
157
173
B - Mining and Quarrying
850
492
302
21
35
C - Manufacturing
117,468
103,590
11,678
1,067
1,133
D - Electricity, Gas, Steam, and
Air Conditioning Supply
1,298
478
633
98
89
E - Water Supply; Sewerage,
Waste Management and
Remediation Activities
1,466
677
711
49
29
F - Construction
4,507
2,304
1,715
226
262
G - Wholesale and Retail Trade;
Repair of Motor Vehicles
and Motorcycles
462,349
427,101
33,577
1,087
584
H - Transport and Storage
11,200
7,264
3,511
231
194
I - Accommodation and Food
Service Activities
144,640
125,396
18,802
337
105
J - Information and
Communication
29,687
27,421
1,973
153
140
K - Financial and Insurance
Activities
46,216
37,813
8,053
167
183
L - Real Estate Activities
11,595
9,478
1,975
79
63
M - Professional, Scientific and
Technical Activities
15,974
13,617
2,164
104
89
N - Administrative and Support
Service Activities
18,713
14,073
3,022
474
1,144
P - Education
18,079
9,105
8,312
391
271
Q - Human Health and Social Work
Activities
28,824
26,076
2,325
200
223
R - Arts, Entertainment, and
Recreation
15,393
13,755
1,563
34
41
S - Other Service Activities
66,173
62,795
3,347
20
11
Source: Department of Trade and Industry, 2018
4
1. Use the internet to search and complete the following activities.
2. Under each classification, search one (1) Filipino owned enterprise.
3. Indicate the business name, asset size, and number of employees.
4. Gather information about the history, organizational values, vision,
mission, goals, and objectives of the specific enterprise.
5. Describe their product or services.
Category
Business Name Asset Size No. of Employees
1. Micro
2. Small
3. Medium
4. Large
Activity
5
Category: Micro
Name of Company 1: _______________________
Provide relevant information about the enterprise like history,
organizational values, like vision, mission, goals and objectives. Also
include what types of products or services the companies or enterprises are
offering.
Category: Small
Name of Company 2: _______________________
Provide relevant information about the enterprise like history,
organizational values, like vision, mission, goals and objectives. Also
include what types of products or services the companies or enterprises are
offering.
6
Category: Medium
Name of Company 3: _______________________
Provide relevant information about the enterprise like history,
organizational values, like vision, mission, goals and objectives. Also
include what types of products or services the companies or enterprises are
offering.
Category: Large
Name of Company 4: _______________________
Provide relevant information about the enterprise like history
organizational values, like vision, mission, goals and objectives. Also
include what types of products or services the companies or enterprises are
offering.
7
The Current Situation of MSME Development in the Philippines
Micro, small and medium enterprises (MSMEs) are the foundation of the
Philippine economy as they serve as important drivers of our economic
development, particularly in promoting growth, jobs and income. The
government's continued implementation of its economic plan is an indication
of recognizing the value of MSMEs in our country.
The Philippine MSME sector consists of 998,342 establishments, or 99.52
percent of the country 's total 1,003,111 registered business enterprises
establishments in 2018 (Figure 1). Micro-enterprises make up the largest
share with 887,272 enterprises (88.87%), followed by small businesses with
106,175(10.58%), and medium-sized enterprises with 4,895(0.49%).
Figure 1. Number of Establishments, 2018
Source: DTI, PSA 2018
Together, these MSMEs generated a total of 5,714,262 jobs (63.19%) of
the country’s total employment. The micro enterprises produced the biggest
share with 2,610,221 generated employments (28.86%) closely followed by small
enterprises with 2,445,111(27.04%) while medium enterprises were far behind
at 658,930 (7.29%). Meanwhile, large enterprises generated a total of
3,328,801 jobs or 36.81% of the country’s overall employment.
8
Figure 2. Contribution of Establishments to Total Employment, 2018
Source: DTI, PSA 2018
In terms of regional distribution, majority of the jobs are generated
by MSMEs in the National Capital Region (NCR) with 1,621,685 jobs; followed
by MSMEs in Region 4-A (CALABARZON) with 824,283; Region 3 (Central Luzon)
with 605,056; Region 7 (Central Visayas), 449,775; and Region 6 (Western
Visayas), 318,467.
By industry sector, MSMEs in the Wholesale and Retail Trade; Repair of
Motor Vehicles and Motorcycles sector generated the greatest number of jobs
with 2,040,774 followed by Accommodation and Food Service Activities
(882,455), Manufacturing (767,831), Financial and Insurance Activities
(316,226), and Education (301,970).
The top five (5) industry sectors according to the number of MSMEs in
2018 were: (1) Wholesale and Retail Trade; Repair of Motor Vehicles and
Motorcycles (461,765); (2) Accommodation and Food Service Activities
(144,535); (3) Manufacturing (116,335); (4) Other Service Activities
(66,162); and (5) Financial and Insurance Activities (46,033). These
industries accounted for about 83.62% of the total number of MSME
establishments (Figure 3).
9
Source: DTI, PSA, 2018
Figure 3. Distribution of MSMEs by Industry Sector, 2018
Geographically speaking, the MSMEs are concentrated in the National
Capital Region (NCR) with 203,312 (20.36%) business establishments, Region
4-A (CALABARZON) with 148,196 (14.84%), 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%). These top five (5) locations accounted
for about 60.05% of the total number of MSME establishments in the country.
Regional concentration of MSMEs is largely associated with economic activity
and population size. Figure 3 shows the distribution of MSME by region in
2018.
10
Figure 3. Distribution of MSMEs by Region, 2015
Source: DTI, PSA, 2018
In terms of value added, the MSME sector contributed 35.7% of the total
with manufacturing contributing the largest share of 6.87%. Wholesale and
retail trade and repair contributed 6.58% followed by financial
intermediation with a share of 6%.
Within the sector, small enterprises accounted for the largest share of
20.5%. Medium enterprises followed with a share of 10.3% while micro
enterprises registered a share of 4.9%. Among small enterprises, wholesale
and retail trade and repair contributed the most with a share of 4.07%
followed by manufacturing with a share of 3.82% while financial
intermediation was next with a share of 3.35%.
For medium enterprises, manufacturing accounted for the biggest share
of 2.77% followed by electricity, gas and water with a share of 1.92% and
financial intermediation with 1.87%. For micro enterprises, wholesale and
retail trade and repair represented the largest contribution of 1.73%.
MSMEs account for 25% of the country’s total exports revenue. It is
also estimated that 60% of all exporters in the country belong to the MSME
category. MSMEs are able to contribute in exports through subcontracting
arrangement with large firms, or as suppliers to exporting companies.
11
Barriers to MSME Growth and Development
The MSME sector in the Philippines, while having made strides over the
years, continuously faces challenges that have implications in its further
development. The constraints that MSMEs often face can generally be
categorized as: (1) financial barriers (access to finance) and (2) nonfinancial
barriers (cost of getting electricity, heavy regulation, high tax
rates, and corruption). These non-financial barriers to MSME development
translate to high cost of doing business or poor business environment, and
discourages the formation of new MSMEs or the entry of existing MSMEs into
larger markets, among others. On the other hand, the lack of access to
financing has been identified as the most serious constraint to MSME growth
and development. Financing, particularly from external sources such as banks,
becomes more important as firms start expanding. Though funds have been made
available by government financial institutions and private banks, most MSMEs
still have difficulty accessing these funds because of: (1) insufficient
collateral, limited credit histories and banking relationships; (2)
inadequate financial records and business plans; and (3) high interest rates.
Thus, MSMEs tend to seek financing support from informal nonbanking channels.
Specifically, the challenges of Philippine MSMEs are:
1) Access to finance
Currently, as provided under the law, there is a mandatory 10% lending
allocation to the sector, providing opportunities for MSMEs. However, in
general, banks tend to prioritize larger corporate borrowers because of
higher gains, perception of lower credit risk, higher repayment rates, and
the availability of collateral. Also, access to financing from traditional
financial institutions is limited due to the lack of credit information.
Since interest rates are at historic lows and banks’ loanable funds are
at high level, this translates into more opportunities for MSMEs to borrow.
One way is to create the necessary enabling environment that encourages banks
to see MSMEs as a viable market. However, recognizing the relatively high
risk, the government should also develop or support the development of credit
enhancement mechanisms (e.g., guarantees, insurance) to address associated
risks of borrower default. Similarly, there is a strong need to enhance MSME
financial literacy to make them more aware of financial resources and
programs available. MSMEs need to be equipped to utilize diversified sources
of financing.
2) Business environment and the cost of doing business
Despite improvements in simplifying the business registration (i.e.,
issuance of the mayor's permit) through the issuance of the 2010 and 2016
DTI / DILG / DICT Joint Memorandum Circular No.1 Set, as well as obtaining
licenses to operate through the Market Authorization Portal from the Food
and Drug Administration (FDA), many government processes and business
requirements are still numerous, tedious, and time consuming to accomplish,
making it more expensive for MSMEs to comply with. This refers to many NGAs
and LGUs, which are marked by differences of rules, poor support for MSMEs
and weak communication among themselves.
12
The business environment should be defined by rules and procedures that
are structured and condensed. Intergovernmental and intra-governmental
cooperation for the implementation of MSMEs is important in order to
accomplish consistent and applicable policies and regulations that would
foster synergies at regional and national levels.
3) Access to market
Many MSMEs find it difficult to penetrate and sustain their presence in
desired markets. Lack of technical knowledge hinders these enterprises from
participating in global value chains, as such MSME contribution to exports
remain small. Another factor may be the low compliance of MSMEs with national
and international standards such as quality and environmental standards,
rendering them uncompetitive in the world market.
In order to support methods for enhanced market access and integration
into global value chains, there is a need to increase information on both
domestic and global markets. Promotion of partnership with large enterprises
as well as the adoption of national and international standards of quality
and environment may likewise be pursued. Further, promotion of online-based
information systems may also be intensified as one of the cost-effective
means of market access for the MSMEs.
4) Productivity and efficiency
Enhancements to productivity and technology are deemed to be the major
drivers of MSME development and progress. Many MSMEs find it difficult to
innovate and undertake cost-effective methods, thus, their labor
productivity suffers from poor technical education and low skill levels. The
sector is hampered by unavailability and high cost of inputs due to
inadequate infrastructure, and seasonality and instability of raw materials
supplies, among others.
Capability building interventions, linkage with large enterprises
including multi-national corporations, and strengthening of industry
clusters, are some of the measures to enhance productivity and foster
innovation in MSMEs.
5) Impacts of climate change and ease of undertaking disaster recovery
Due to its geographic location, the country ranks high in terms of
exposure and risks to natural hazards such as earthquakes, typhoons, flooding
and storm surges. Since MSMEs are a key driver of local economic development,
resilience to both natural and man-made disasters should look not just into
the context of shared community disaster risks but also in terms of business
continuity.
Efficient and effective business continuity programs should be made
available to any enterprise, given their importance in the locality and their
critical condition due to the risks they face. MSME should develop and
strengthen their resilience by incorporating business continuity and
emergency preparedness and response. Using business continuity planning
framework enables MSMEs to direct and control their activities in order to
ensure the continuity of services and recover losses after a disaster.
13
Opportunities
Against the backdrop of challenges faced by MSMEs, present opportunities
provide the long-term impetus for MSMEs to be a more significant driver in
the country’s economic development. Among these are the following:
1) The Philippine economy as the world’s next powerhouse
From 2012 to 2016, the Philippines was one of the fastest growing economies
in the world based on gross domestic product (GDP). This has made the country
one of the world’s most attractive investment destinations for both local
and foreign businesses. On the supply side, this impressive growth
performance creates tremendous opportunities for logistics, raw materials,
employment, business, and virtual hosting. On the demand side, a larger and
more cash-rich consumer base promises more robust domestic markets. The
growth prospects of the country can only get even better through the years,
barring any unforeseen circumstances.
2) The ASEAN Economic Community (AEC) and other Free Trade Agreements
The integration of the ten (10) ASEAN economies starting in 2015 offers
numerous opportunities for nimble MSMEs to expand their export, diversify
markets within the region and forge partnerships with other ASEAN MSMEs in
procuring globally competitive products and services. The various Free Trade
Agreements (FTAs) that the Philippines has entered into offer opportunities
for MSMEs to increase exports while welcoming investments from counterpart
countries which include their own MSMEs.
3) Solid demographics because of a young and vibrant population
Majority of the population in the Philippines are composed of young and
economically active age group whose consumer tastes are increasingly
changing. It behooves the MSMEs which are largely domestic-oriented to
recognize opportunities in these shifting demographics to enable them to
properly take advantage of this demographic group – as potential
entrepreneurs, customers and source of labor.
Historically, the country has been in a demographic "sweet spot" where
young people are more than old and the working-age population is large enough
to support aging segments of the population. This could mean a perfect
breeding ground for youth entrepreneurship, a wider domestic market as a
result of rising per capita income along with the sheer volume of potential
consumers, a technology-driven workforce, and enhanced investment
opportunities from potential developed country partners with aging
population.
4) Green Growth
The Philippines has signed the historic Paris Climate Change Agreement,
which calls for the elimination of carbon emissions associated with natural
disasters and severe weather conditions. The global trend towards lower
carbon emissions poses opportunities for MSMEs to manufacture
environmentally-friendly goods and services.
14
Currently, the government is developing the roadmap on Nationally
Determined Contribution (NDC) in compliance with the Paris Agreement that
outlines the country’s Low Emission Development Strategies/Goal/Pathway. The
government may also introduce measures like carbon taxes and subsidies for
green infrastructure. Increasing investments in renewable energy and nonfossil-
fuel-intensive products will likewise provide opportunities for
growth and employment.
15
With your group, identify three agribusiness entrepreneurs in the
Philippines and find out the problems they face and the support they need
from the government. Use the sample format below:
Name of Entrepreneur: ______________________________
Type of Business: __________________________________
Types of Problems Brief Description / Government
Support
Personal problems – family,
relatives, employees and other
personal problems
Problems with access to financial
support / money
Problems with infrastructure – lack
of roads, telecommunications,
energy etc.
Problem with use of technology
Problems with cost of doing
business – permits, licenses, etc.
Problems with market access
Problems with productivity and
efficiency
Problems with climate change and
ease in recovering after a disaster
Activity
16
Business Climate for MSME Development
The business climate in which MSMEs find themselves situated today is
complex and fluid due to the ever-changing economic and political landscape.
Providing business opportunities and ensuring good governance for the
citizenry, including the MSMEs, are some key international commitments that
promise newer and much larger markets through the World Trade Organization,
ASEAN Common Market and the APEC partnership among others.
Each country has its own procedures and rules for buying and selling to
other countries. How do these enterprises transact business with firms in
other countries? If a small entrepreneur would like to do business with an
entrepreneur in another country, it has no choice but to follow the rules of
that particular. And these rules will differ from one country to another.
Many SMEs find it difficult to comply with these rules. This is not
surprising because some of the rules were designed in order to protect the
local business in a particular country. For example, a country will impose
high tariffs, volume quotas, strict quality standards and other restrictions
in order to make it hard for a foreign firm to sell products to its local
market. This way, the local firms producing the same product, but which do
not have to pay tariff, will have an advantage. In the face of these
restrictions, many SMES are afraid reluctant to export.
However, there is a movement towards globalization and liberation in trade
and industry. This means that it is getting easier and simpler for countries
in the world to do business with each other. Let us now look at key
international alliances that have changed the way countries do business with
each other.
World Trade Organization (WTO). The WTO is the only formal and
multilateral institute to working for free and open global trade. Composed
of so countries, it accounts for at least 90% of world trade today. By
joining the WTO, the Philippines guarantees itself access to world markets
on most-favored-nation (MFN) basis. MFN status means that country is given
priority in terms of trade transactions. In other words, if the USA needs
garments and the Philippines has MFN status, USA will buy from the
Philippines first before buying from other countries that do not have MFN
status. WTO aims to lower tariff so that there will eventually be a freer
exchange of goods and services among countries. It is just like having a
group of business friends who decide to exchange business with each other at
a lower price. One says: “You buy from me; I buy from you.” And the other
agrees.
Asia Pacific Economic Cooperation (APEC). Formed in 1989 as a response
to the growing economic interdependence among Asia-Pacific economies, the
APEC has become a primary means to promote open trade and economic
cooperation among its 18 member economies. APEC embraces all major economies
of the region and is acknowledged to be the most dynamic and fastest growing
in the world.
17
APEC Member Countries are the following:
 Australia
 Brunei Darusalam
 Canada
 Chile
 Hongkong
 Indonesia
 Japan
 Korea
 Malaysia
 Mexico
 New Zealand
 Papua New Guinea
 Philippines
 PR China
 Singapore
 Chinese
 Taipei
 Thailand
 United States
In support of SME, APEC is addressing five priority areas namely: 1)
human resources development; 2) information access, 3) technology sharing;
4) financing; and 5) market assess.
ASEAN Free Trade Area (AFTA). The members of the Association of
Southeast Asian Nations (ASEAN) opted to join hands and create a bigger and
more open regional market that would make it more attractive to foreign
investment. At the fourth ASEAN Leaders Meeting in Singapore with an
unprecedented tariff (taxes on goods from another country) reduction program
to be implemented in stages until it is down to 0-5% by the year 2003. This
means that by then, goods going from one ASEAN country to another will not
be charged OF tariff or taxes. In other words, trade within ASEAN will be
open and unrestricted. Thus, locally manufactured products will be competing
on equal basis with similar products coming from Indonesia or some other
ASEAN country. What does this mean for the Philippine SME? It means that it
must be prepared to face the competition coming from other ASEAN countries.
It means that it must sell better and lower-priced products. To do this,
Philippine SMEs must be efficient and productive. Is this good for SMEs?
Well, it is good for SMEs that are prepared to make adjustments and to
modernize, while it is bad for SMEs that refuse to change.
BIMP-East ASEAN Growth Area. The Brunei-Indonesia-Malaysia-Philippines
East ASEAN Growth Area (BIMP-EAGA) forms a sub-regional economic market of
some 40 million population. It comprises Mindanao in the Philippines and the
border areas of three other Southeast Asian countries namely Brunei,
Indonesia and Malaysia. The basic concept behind the growth polygon is that
of "borderless" cooperative investment and trading ventures to stimulate
economic vitality and progress of the area.
In the Philippines, the following domestic, regional and global
commitments will provide MSMEs with much bigger economic opportunities than
would otherwise be available if they had focused solely on the domestic
markets.
1. The Philippine Development Plan 2017-2022
The Philippine Development Plan (PDP) 2017-2022 is the first mediumterm
plan to be based on a national long-term vision known as the AmBisyon
Natin 2040, which reflects the collective vision of a Matatag, Maginhawa, at
Panatag na Buhay Para Sa Lahat (Strongly-rooted, Comfortable, and Secure Life
for All). The Plan aims to lay a solid foundation for inclusive growth, a
high-trust and resilient society, and a globally-competitive knowledge
18
economy toward realizing the vision by 2040. It consists of seven sections
that gives an overview of the issues of economic growth, as well as growth
strategies to enhance social cohesion, equity, reduce inequality, increase
growth potential, allow and promote economic climate and the pillars for
sustainable development. It is anchored on the 0-10 Point Socioeconomic
Agenda of the Duterte Administration, and is developed through the conduct
of national consultations and roundtables on social development. It also
takes into consideration the treaty commitments of the government, such as
the Sustainable Development Goals (SDGs) for 2030.
The administration of President Rodrigo R. Duterte seeks to build on
the successes of previous administrations in reducing poverty and increasing
prosperity. Apart from the platform of combating crime and restoring peace
and order, President Duterte also underscored that a peaceful society would
be more conducive toward the attainment of more stable and long-lasting
economic progress. In general, the Duterte economic platform seeks to
distribute economic activity throughout the country even as it also aims to
improve the overall business climate and make doing business at all levels
or sizes of enterprise an easier proposition.
President Duterte vowed to sustain the current economic policies
implemented by the previous administration. This is to ensure the continued
expansion of the economy, which in the first quarter of 2016 posted the
highest growth in Asia at 6.9%. The government draws upon successful models
used to attract business to local cities and pursue the relaxation of
Constitutional restrictions on foreign ownership, except on land ownership,
in order to attract foreign direct investments (FDIs), according to the
administration’s economic managers. The objective is to invest in building
the infrastructure necessary to make the Philippines a 21st century economy:
from modernizing ports to improving logistical spine to ensuring reliable
and low-cost power for all the islands. The current government eyes to
implement not just major Public-Private Partnership (PPP) projects but more
small and medium-sized projects, particularly in the countryside to ensure
a more inclusive growth, as this will provide more job opportunities for
more people.
The Duterte Administration’s economic program gained more structure
when the President unveiled his “0+10-Point Agenda,” which is summarized as
follows:
1. Continue and maintain current macroeconomic policies, including fiscal,
monetary and trade policies.
2. Institute progressive tax reform and more effective tax collection,
indexing taxes to inflation.
3. Increase the country’s competitiveness and ease of doing business.
4. Investment on infrastructure is also targeted to remain strong at the
current 5% of GDP or higher at around six percent of total domestic
output, with the help of PPP.
5. Focus on the countryside to “promote rural and value-chain
development towards increasing agricultural and rural enterprise
productivity and rural tourism.”
19
6. Ensure security of land tenure to encourage investments, and address
bottlenecks in land management and titling agencies.
7. Invest in human capital to further ensure that the businesses’ demand for
skilled individuals are met, which will also ensure that people will have
work to sustain them and in turn boost economic growth.
8. Promote science, technology, and creative arts “to enhance innovation and
creative capacity towards self-sustaining inclusive development.”
9. Strengthen social protection programs, including the conditional cash
transfer (CCT) program, to address poverty and “protect the poor against
instability and economic shock.”
10. Vigorously pursue the Reproductive Health Law (RH Law) to help couples
from poor families to have informed choices to plan their families.
Of these points, numbers 3, 5, 6, 7, and 8 are those that relate most
closely to MSMEs–numbers 3 and 5 being the most direct. Improving the
country’s competitiveness (no. 3) will potentially raise investments and
generate inclusive growth. Since the majority of the country’s registered
enterprises belong to the MSME sector, lowering the cost of doing business
through streamlining business permit and licensing procedures will redound
to the benefit of MSMEs.
A “pivot to the countryside” (no. 5) is the most logical direction for
the new administration, considering that President Duterte, having been once
a local chief executive, has first-hand knowledge and experience of what the
rural sector requires in matters of job creation, income generation, and
livelihood promotion.
With respect to securing land tenure (no. 6) as a means to promote
investments in both rural and urban sectors, the issue becomes all the more
pressing because there are presently no legal remedies to securitize land
assets that are not covered by land titles. This is in the context of the
country’s long-standing agrarian reform program, which provides program
beneficiaries or awardees of lands a Certificate of Land Ownership Award
(CLOA) pertaining to the awarded property but is not negotiable as an
instrument of security as a regular title would.
Investing in human capital (no. 7) through increased spending on
education, training, and skills development, among others, will also impact
favorably on MSMEs, which will require more and skilled manpower as they
move further up the value chain. The government’s adoption of the K to 12
Program would
strengthen the country’s human capital resources and provide sufficient
capacity/capability development of middle-level skills, employment, and
entrepreneurship.
Science and technology (S&T) and the creative arts (no. 8) also form
the basis for which innovations in products and services, and therefore
public spending in these areas, especially in human capital development in
S&T and the arts, will improve the capability of MSMEs and make them more
competitive in the global
markets.
20
The broader context of the President’s peace thrust is also an important
pillar in the administration’s economic platform. Peaceful communities form
a more solid basis for creating businesses which generate jobs that
ultimately provide an even more vibrant and peaceful community, turning full
circle, i.e., the so-called peace dividend
2. ASEAN Strategic Action Plan for MSME Development 2016-2025
The ASEAN Economic Community (AEC) Blueprint’s goal is “to transform
ASEAN into a single market and production base, a highly competitive economic
region, a region of economic development, and a region fully integrated into
the global economy” (Bano and Tabbada, 2015). Under AEC’s third pillar of
integration, “Equitable Economic Development”, the growth of MSMEs is
emphasized where the progress of the MSME sector is key towards narrowing
the development gap.
It is essential that MSME development policies are strategically
relevant given the diversity of ASEAN MSMEs and the complexity of issues
they face.
The ASEAN Strategic Action Plan for SME Development 2016-2025 or SAP
SMED 2025 sets out a vision that embodies the common aspiration of ASEAN
Member States (AMS) to have “Globally Competitive and Innovative MSMEs” with
their commitment to achieve globally competitive, resilient and innovative
MSMEs, seamlessly integrated to AEC and supporting inclusive development in
the region by 2025. The Plan’s five (5) Strategic Goals are: (A) Promote
Productivity, Technology and Innovation; (B) Increase Access to Finance; (C)
Enhance Market Access and Internationalization; (D) Enhance Policy and
Regulatory Environment, and; (E) Promote Entrepreneurship and Human Capital
Development. The Philippines is expected to play an important role in
implementing Strategic Goal E as country champion.
Post-2025, SAP SMED identified 10 Key Performance Indicators (KPIs) as
a policy tool to evaluate the achievements of the Plan. The ASEAN likewise
partnered with OECD in developing an ASEAN Policy Index to further evaluate
the policy action of all member states.
Meanwhile, the Philippines’ Chairmanship of ASEAN has paved a way for
the country to lead the region to promote dynamic and innovative MSMEs
through the adoption of its 7Ms (i.e., Mindset, Mastery, Mentoring, Markets,
Money, Machines and Models). The Manila Call to Action (MCA) for ASEAN MSMEs:
7Ms to MSME Development, which was adopted on 14 July 2017 took into account
recommended action plans in the areas of 7Ms to create smarter entrepreneurs
that can thrive in an increasingly competitive global market.
3. APEC Strategy for SME Development
The APEC SME Working Group (SMEWG) Strategic Plan 2017-2020 aims to
promote SME development and enhance the effectiveness of APEC efforts for
SMEs.
This is in recognition of the fact that SMEs continue to face challenges
such as trade barriers that hinder their full participation in the global
marketplace. Thus, the APEC SMEWG Strategic Plan 2017-2020 was developed to
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provide a roadmap in order to address critical and emerging issues pertaining
to the growth of SMEs in the APEC region. Consistent with the SMEWG’s mission
statement and taking into consideration the APEC initiatives, as well as the
Iloilo Initiative and the Boracay Action Agenda to globalize MSMEs as
endorsed by APEC leaders in 2015, and the Digital Economy Action Plan
welcomed by Ministers, the Strategic Action Plan 2017-2020 will focus on
four (4) priority areas, namely, entrepreneurship, innovation, the internet,
and digital economy; financing for business expansion and capacity
development; inclusive business ecosystem that supports SME growth; and
market access for SMEs. This is the thrust of modernizing efforts of MSMEs
in the Asia-Pacific region, and Philippine MSMEs will benefit greatly from
this APEC endeavor.
4. 7Ms Way of Uplifting MSMEs
As part of President Duterte’s administration goal of ensuring inclusive
growth and addressing income inequality, there is a need to empower those at
the bottom of the pyramid and marginalized sectors with the right mindset
and know–how to be able to move up in life. DTI has come up with 7Ms to help
MSMEs set-up a business and be smarter entrepreneurs. These can help in
making a difference in the market, while contributing to a larger cause of
sustaining the Filipino entrepreneurial revolution.
As part of the government’s efforts to support and promote MSMEs, the
DTI has come up with the 7Ms for creating smarter MSMEs:
Figure 4. DTI’s 7Ms Way of Uplifting MSMEs
Source: DTI, 2018
M1: Mindset
The right and positive entrepreneurial attitude that will carry the
MSME through a vibrant entrepreneurial journey. Initiatives that will infuse
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an entrepreneurial mindset that is success- and innovation-driven,
collaborative, and proactive will be pursued.
M2: Mastery
The mastery of know-how and how-to’s of entrepreneurship – from setting
up a business, basic rules of spotting market opportunities, finding the
right product positioning and differentiation, product and market
development, basic busines finance and preparation in developing a system
for continuous innovation – will be provided.
M3: Mentoring
Continuous business guidance in partnership with the private sector
will be afforded. Experience coaching and mentoring of industry experts and
large corporations on different aspects of business operations will be
engaged
M4: Money
Funding whether through microfinance or from alternative sources will
be explored, to help out in financing business requirements.
M5: Machine
MSMEs will be equipped not only with the must-have knowledge on
equipment and right tool to ensure quality production. Through these, MSMEs
can level up production and increase productivity.
M6: Market
Assistance in promoting products through trade fairs in major malls and
internationally recognized exhibits will be provided. Linking MSMEs with big
companies or to the government to supply their requirements will be sought.
M7: Models
New and innovative business ideas will be developed and provided to
MSMEs to help them get into business. MSMEs need to have ties with bigger
businesses to create synergies which are essential in matching and innovating
products and services.
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As discussed, there are movements towards globalization and liberation
in trade and industry which means that it is getting easier and simpler for
countries in the world to do business with each other.
However, in the 2018 Survey of Entrepreneurs and MSMEs in Philippines,
the survey responses indicate a lack of awareness on export policies and
trade agreements. There is an overall low awareness (48%) of the Philippines’
signature policy for MSMEs, the Magna Carta for Micro, Small, and Medium
Enterprises.
To help solve this problem with a purpose of increasing level of
awareness of Filipinos on export policies and boost success rate for
entrepreneurs, what must be done?
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CASE STUDY
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Current Policies and Programs for MSME Sector
Micro, Small and Medium Enterprises (MSMEs) play an important role in
the country’s development. They make up 99% of all manufacturing
establishments, and 55% of the people employed in the manufacturing and
service sector. Records of exporting firms in the country reveal that 60% of
our exports come from SMEs. No wonder, the Philippine government has made it
a national policy to promote the development of SMEs.
The Philippines has a legal framework governing the policy for MSME
development enshrined in the Magna Carta for Micro, Small and Medium
Enterprises (RA No. 6977, as amended), the Barangay Micro Business
Enterprises Act of 2002 (RA No. 9178, as amended by RA No. 10644), the Go
Negosyo Act (RA No. 10644), and the Youth Entrepreneurship Act (RA No.
10679). Said laws work synergistically to provide a holistic approach in
setting strategic measures that encompass a wide range of relevant sectors
under the purview of MSME development.
Government policies and programs for MSMEs cover the following outcome
areas:
1. Business Environment (BE) - a dynamic practice and culture of governance
that fosters the establishment, development, sustainability, and
competitiveness of socially responsible and environment-friendly MSMEs.
2. Access to Finance (A2F) - the sustained availability of reasonably
priced, socially responsible, and environment-friendly financial products,
services, and support programs that are designed for MSMEs and those MSMEs
can conveniently and readily access.
3. Access to Markets (A2M) - the sustained ability of MSMEs to be
competitive in selling their products and services to existing and new
markets, both domestic and international, under a climate of fair, free,
socially responsible and environment-friendly trade practices.
4. Productivity and Efficiency (P&E) - the production and delivery of
competitive, standards-compliant, socially responsible, and environmentfriendly
products and services that generate optimum economic returns.
Some of the major policies, programs, and projects in the four outcome areas
are as follows:
Table 1. Policies and Programs Supporting MSMEs
BUSINESS ENVIRONMENT
RA No. 9501: Magna Carta for Micro, Small and Medium
Enterprises (as amended, RA No. 6977, RA No. 8289)
An Act that promotes, supports, and encourages entrepreneurship
through providing program assistance, and strengthening a
balanced and sustainable development to MSMEs.
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RA No. 9178: Barangay Micro Business Enterprises (BMBEs) Act
of 2002
An Act promoting the establishment of Barangay Micro Business
Enterprises (BMBEs), allocating incentives, benefits, and
other purposes.
RA 10644: Go Negosyo Act
An Act promoting job generation and inclusive growth through
the development of micro, small, and medium enterprises,
mandating the establishment of Negosyo Centers in all cities,
municipalities, and provinces, which shall be responsible for
promoting ease of doing business and facilitating access to
services for MSMEs.
R.A. 10679: Youth Entrepreneurship
Act
An Act promoting entrepreneurship
and financial education among
Filipino youth.
RA 9485: Anti-Red-Tape Act
An Act to improve efficiency in the
delivery of government service to the
public by reducing bureaucratic red
tape, preventing graft and corruption,
and providing penalties therefor.
Joint Memorandum Circular No. 1
Series of 2011
Guidelines in implementing the
standards in processing business
permits and licenses in all cities
and municipalities.
Joint Memorandum Circular No.1 Series of
2016
Revised standards in processing
business permits and licenses in all
cities and municipalities.
Enhanced Business Name Registration System
Provides ease of registering and paying business name registration online.
ACCESS TO FINANCE
RA No. 9501, Section 15: Mandatory Allocation of Credit
Resources to Micro, Small and Medium Enterprises (as amended,
RA No. 6977, RA No. 8289)
For a period of 10 years from the date of the Act, all lending
institutions under BSP rules, whether private of public, shall
set aside at least 8% for micro and small enterprises and at
least 2% for medium enterprises of their loan portfolio and
make it available for MSME credit.
Microfinance program for micro, small, and medium enterprises
(MSMEs) such as ‘Pondo sa Pagbabago at Pag-asenso,” or P3
Program
Aims to provide affordable loan program for MSMEs for this
sector to shun loan sharks such as 5-6 money lending scheme.
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The P3 is designed to bring down the interest rate at which
micro-finance is made available to micro enterprises.
RA 10644: Go Negosyo Act
An Act promoting job generation and inclusive growth through
the development of micro, small, and medium enterprises,
mandating the establishment of Negosyo Centers in all cities,
municipalities, and provinces, which shall be responsible for
promoting ease of doing business and facilitating access to
services for MSMEs.
Access of Small Entrepreneurs to
Sound Lending Opportunities
(ASENSO) Program
A revitalized government-led MSME
financing program which aims to
lower the effective cost of
borrowing and liberalize
requirements, create wider
financing system that will give
MSMEs access to short and long-term
funds and standardize lending
procedures. Under the program,
MSMEs get the necessary assistance
also through market exposure, human
resource training, and product
development.
Credit Surety Fund Program (CSF)
A credit enhancement program designed by
BSP that aims to increase the credit
worthiness of MSMEs experiencing
difficulty in obtaining loans due to
lack of collateral, credit knowledge,
and track record.
Access of MSMEs to Digital Payments
A digital finance ecosystem with the right mix and range of service
providers, digital solutions, and delivery channels should facilitate the
convenience, affordability, and reliability of financial service. In line
with this, the National Retail Payment System (NRPS) aims to establish a
safe, efficient, reliable and affordable retail payment system in the
country. The framework defines high-level policies, standards and
governance principles covering retail payment operations and
infrastructures. This is an integral reform considering that out of 2.5
billion payment transactions per month, only 1% are made through electronic
means. This will translate to lower cost and higher efficiency for our
MSMEs as well as unleash the potential of e-commerce.
ACCESS TO MARKET
Go Lokal!
A retail concept store which showcases innovative, high
quality Philippine products crafted, designed and produced
by the coun-try’s MSMEs. It also serves as a free marketing
platform where MSME partners gain access to the local
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consumer market, and ultimately, to the global export
market.
Market Development Programs such as OTOP Program
A priority program of the government to promote
entrepreneurship and create jobs. Through OTOP, local chief
executives of each city and municipality take the lead in
identifying, developing, and promoting a specific product
or service, which has competitive advantage.
Export Pathways Program (EPP)
EPP focuses on providing export assistance through a
systematic approach, providing interventions at every
stage of an exporter’s growth. It utilizes the Value Chain
Approach (VCA), Industry Clustering, and Sub-contracting
to arrive at a holistic export development program.
Enhanced Support for Trade Fairs
This is the provision of a more organized menu of market
services like trade fairs which are affordable to SMEs,
through greater participation and partnerships with private
organizations, LGUs and other key sectors. The DTI
implements national, region-al, sectoral, as well as
international trade fairs such as the Na-tional Trade Fair
(NTF), Manila F.A.M.E. International, International Food
Exhibition (IFEX), and e-Services Philippines, among
others.
oneSTore
oneSTore.ph is an e-commerce web application that operates
nationwide and caters primarily to Philippine consumers.
It helps DOST-assisted MSMEs widen the scope of their target
market and It can help deliver economic growth and increase
business opportunities. oneSTore provides customers with an
effortless shopping experience and retailers with simple
and direct access to the largest customer base in the
Philippines.
Tindahang Pinoy
A depot that will showcase worldclass,
export-quality Philippine
products. This facility aims to
help exporters penetrate the
domestic consumer and tourism
markets with fund assistance from
the DTI through the Philippine
International Trading Corporation
(PITC).
Information Drive on Foreign Trade
Agreements
The DTI, in partnership with the Bureau
of Customs (BoC), the Tariff Commission
and the private sector, has organized a
series of information sessions on Doing
Business in Free Trade Areas (DBFTA)
nationwide to encourage and assist
entrepreneurs to use Free Trade
Agreements (FTAs) and benefit from them.
Understanding emerging and new markets
as well as instruments such as FTAs will
help exporters address new challenges in
the global business environment.
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Brand Equity Development Program (BrEDP)
A new initiative of the government to develop innovative and globally
competitive brands that can successfully penetrate into the national,
regional/ASEAN, or international markets. The overall goal of the program
is to increase awareness and identity of at least one brand per province,
per year over the six years of implementation from 2017 to 2022.
PRODUCTIVITY AND EFFICIENCY
Shared Service Facilities (SSFs)
This program entails setting up common service
facilities or production centers for certain processes
to give MSMEs access to better technology and more
sophisticated equipment to accelerate their bid for
competitiveness and help them graduate to a next level
where they could tap better and wider markets and be
integrated in the global supply chain. The project is
implemented in cooperation with the academe, LGUs, and
private organizations.
SME Roving Academy (SMERA)
A continuous learning program for the development of
micro, small, and medium enterprises to become
competitive in domestic and global markets.
Small Enterprise Technology Upgrading Program (SET-UP)
SETUP provides MSMEs with equipment and technical
assistance to enable them to increase sales and
production, streamline and improve overall company
operations, upgrade the quality of products and
services, conform to national and international
standards of excellence, and be competitive in their
respective fields.
KAPATID Mentor ME
The Program is an initiative of the DTI and the
Philippine Center for Entrepreneurship (PCE) to help
the country’s micro and small enterprises (MSEs)
through coaching and mentoring where mentors teach
MSEs on different aspects of business operations.
Food Innovation Center
The Centers, which are located in a
state universities and colleges or
private higher educational
institutions, aim to produce valueadded
agricultural and fishery food
products by becoming the hub for
innovations and technical
Industry Clustering
The Program entails the delivery
of various forms of technical
assistance/interventions such as
skills training, product development,
market development and access, and the
like in order to capacitate MSMEs and
improve their productivity and
competitiveness.
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support services for the food
processing industry. Support
services include food testing,
information, packaging and labeling
design, consultancy services,
trainings, and seminars.
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Give the importance of laws and policies for MSMEs.
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Activity
31
Salient Points of the MSME Development Plan 2017-2022
The Micro, Small and Medium Enterprise (MSME) Development Plan 2017-
2022 is the sectoral plan for the growth and advancement of the MSME sector.
It was developed in consultation with various stakeholders from the private
sector, academia, and government agencies. It is aligned with the Philippine
government’s goal of boosting employment, business, and livelihood or
“Trabaho, Negosyo, Kabuhayan” translating to “Malasakit”, “Pagbabago”, at
“Patuloy na Pag-unlad” of the Philippine Development Plan (PDP) 2017-2022.
The key inputs to the Plan’s formulation were also taken from the Ten-
Point Agenda for Development presented by President Rodrigo R. Duterte at
his first State of the Nation Address on 25 July 2016. It was also developed
in accordance with AmBisyon Natin 2040, the long-term mission and vision
statement for Philippine development formulated by the National Economic and
Development Authority (NEDA) in March 2016. MSME Development Plan 2017-2022
continues where the previous Plans have left off, in the manner of its
formulation, its intended modes of execution, and most importantly, in its
intention to fully develop the sector’s capabilities and harness its
potential for the good of the country
The Plan’s Vision
The MSME Development Plan 2017-2022 has as its vision: “more globally
competitive MSMEs that are regionally integrated, resilient, sustainable,
and innovative thereby performing as key drivers of inclusive Philippine
economic growth.”
To achieve this, the MSME Development Plan 2017-2022 has three focus
areas with corresponding themes or points of emphasis: (1) business
environment, with emphasis on improving the business regulatory requirements
and procedures as well as maximizing access to finance; (2) business
capacity, with the aim of strengthening human capital development and
improving innovation and technological competitiveness of MSMEs to transform
and create new business models and enterprises; and, (3) business
opportunities, with the aim of broadening access to markets.
Following are the goals, corresponding strategies, and action plans:
I. Business Environment
1. Improved Business Climate
The basic strategy adopted by the Plan is to “simplify, standardize,
and harmonize MSME-related rules and regulations at all levels that will
encourage MSMEs to tap the opportunities in macroeconomic policy,
infrastructure development, and trade deals.” Under this strategy, the action
plans include:
a. Expedite delivery of MSME assistance services;
b. Streamline business permit and licensing systems;
c. Remove restrictions, provide incentives and promote job-creating
investments;
d. Reduce regulatory burden; and,
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e. Foster in all government entities a convergence mindset that recognizes
the centrality of MSME development in achieving dynamic and inclusive
economies.
2. Improved Access to Finance
The Plan strategy calls for streamlining and simplifying loan processes
for MSMEs, creating the necessary enabling environment that encourages local
banks and relevant financial institutions to reach MSMEs at the ground level
while equipping them with knowledge and enticements to avail of formal
financial channels.
Under this goal and strategy, the action plans include:
a. Streamline and simplify loan requirements and processes for MSMEs and
cooperatives;
b. Build capacities of financial institutions and cooperatives to provide
business development assistance for MSMEs;
c. Provide financial literacy trainings for MSMEs;
d. Institute policies and programs for innovative financing; and,
e. Develop, promote and expand alternative financial instruments to better
serve MSMEs’ financing requirements.
II. Business Capacity
3. Enhanced Management and Labor Capacities
To enhance management and labor capacities, the Plan strategy is to
expand and strengthen the human resources capacity of MSMEs through optimal
application of a combination of mentoring, group training, field outreach,
and online training; and, improve MSME knowledge base using gender and other
parameters.
Under this goal and strategy, the action plans include:
a. Encourage and promote entrepreneurship and equal opportunities for all
including women and youth;
b. Enhance labor capacities through human resource development and gender
sensitivity programs for MSMEs; and
c. Intensify advocacy and education campaigns on laws/policies relevant to
labor and related policies.
4. Improved Access to Technology and Innovation
To improve access to technology and innovation, the Plan strategy is to
support linkages between MSMEs and large corporations, develop more inclusive
business models and social enterprises; establish feasible domestic economic
zones for MSMEs; and make innovative technologies including sustainable and
resilient practices affordable, cost effective, and accessible to MSMEs
across all regions of the country. Under this goal and strategy, the action
plans include:
a. Expand facilities that MSMEs can share;
b. Provide financing programs for equipment and machinery acquisition;
c. Promote Philippine National Standards (PNS) by NGAs and its adoption by
MSMEs;
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d. Develop internationally harmonized industry performance standards;
e. Foster wider MSME clustering to achieve economies of scale via
clustering models such as co-ops, “corporatives,” nucleus farming, and
other MSME collective mechanisms; and,
f. Promote commercialization of technology and build capabilities to
foster industry clustering.
III. Business Opportunities
5. Improved Access to Market
To improve access to market, the Plan strategy is to strengthen valueand
supply- chain linkages; as well as make market information, analysis,
learning, contacts, matching, and interaction on domestic and export markets
timely, accurate, inexpensive, and available for MSMEs. Under this goal and
strategy, the applicable action plans include:
a. Maximize opportunities that expand access to existing and new markets
presented by the ASEAN Economic Community and other preferential trading
agreements;
b. Promote e-commerce;
c. Organize local and international marketing events; and
d. Design export programs.
Cross-cutting Strategies
Other issues or strategies need to be pursued as they cut across the
abovementioned strategies and goals because of their overall relevance. These
are the following:
a. Expand MSME assistance centers (e.g., Negosyo Center, etc.)
b. Strengthen role of LGUs;
c. Promote Green Growth;
d. Promote women and youth entrepreneurship; and,
e. Maximize opportunities in the digital and internet economy.
Strengthening Institutional Support
To achieve these action plans, five (5) institutional support measures
were identified:
1. Effective coordination, complementation, and sharing among national and
local government agencies together with MSME business groups and nongovernmental
organizations (NGOs) advocating MSMEs including
establishing a more defined and regular mechanism for public-private
sector partnership in the delivery of programs and services for MSMEs;
2. Generation and analysis of relevant information and sex-disaggregated
data in implementation plans and its needed analysis for timely
dissemination to stakeholders and MSMEs for planning, budgeting, and
monitoring and evaluation (M&E);
3. Responsive, timely, graft-free, and effective services by implementing
agencies and its personnel complement to the MSMEs;
4. Close geographical and sectoral monitoring and evaluation of Plan
implementation so that timely update and adjustments can be undertaken;
and
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5. Necessary budget allocation equitably distributed regionally for all
indicated programs/projects/activities and its timely releases for
effective Plan implementation.
These measures are cross-cutting and cannot be strictly categorized as
supporting a specific strategy or set of action plans, in which case the
undertaking of these measures are seen more to benefit the overall framework,
its focus areas, and the strategies.
Implementation of Strategic Actions
This Plan developed a suggested timeline/Work Plan for implementing the
actions identified under each strategic goal which the concerned agencies or
lead can further fine-tune with concrete action lines according to their
specific needs and objectives. It is important for all the stakeholders to
have a clear understanding of each other’s commitment and what action items
will be implemented by whom, when and how under an agreed Implementation
Work Plan. The Work Plan should be vetted within the first 6-months of the
Plan’s implementation and should be updated at least on an annual basis.
The Plan will implement key programs to support the development of
MSMEs.
Monitoring and Evaluation
A monitoring and evaluation framework has been developed in order to
guide the Plan’s stakeholders in determining whether the MSME development
framework elements have been achieved or are proceeding in the desired
direction.