SMEs cutting costs, rethinking plans because of economic crisis

Small and medium enterprises (SMEs) in the Philippines were cutting costs and shifting strategies to stay alive amid the global economic slowdown, a recent poll showed.

According to the results of the 2009 UPS Asia Business Monitor presented on Thursday, local SMEs surveyed said that they would tighten cash management flow via strict credit control and collection plans (according to 73 percent of respondents); reduce other costs, such as rent, utilities and miscellaneous (63 percent); diversify or explore new business lines (59 percent); reduce staff costs by downsizing or pay cuts (36 percent); or changing the business model (23 percent).

Forty-seven percent of Filipino respondents said that they are reducing transportation and distribution costs.

Also, to keep themselves afloat amid the economic turmoil, the local SMEs said that they would explore new markets (24 percent of respondents); move to higher-value products and services (20 percent); strengthen the workforce with good talent (16 percent); forge new business ventures, acquisitions and partnerships (15 percent); and optimize operations and production (14 percent).

These adjustments were seen necessary, as 40 percent of local respondents deemed the economy would remain at its dire state in the next 12 months, while 40 percent said they were expecting things to get even worse in the coming months. Only 20 percent expected growth in the next 12 months.

Better times ahead

Still, many local SMEs remained cautiously optimistic, as 38 percent of those polled said that they expect opportunities to be “better” or “much better” in the next 12 months. Forty-three percent said their prospects would likely remain the same, while 19 percent deemed theirs could get “worse.”

Thirty-two percent of the Filipino SMEs polled—the second-highest number in the region, next only to China—said that they will hire more workers even amid the downturn. Fifty-two percent of the local respondents said that they would maintain the current number of workforce, while 16 percent will trim the number of their employees.

The survey also showed that more SMEs in the Philippines would likely trade with nations in Asia-Pacific and the Middle East more than with European and North American markets whose economies were hit badly by the crisis.

The local SMEs surveyed see growth this year mostly from the agriculture, fisheries and forestry, manufacturing and information technology sectors.

When asked when they expect the global economy to fully recover, the majority, 68 percent, said it would happen by 2011 or beyond. The remaining 32 percent said that they expect global economic recovery this or next year.

Sixty-five percent of the respondents from the Philippines said the domestic economy would recover only when the government fine-tunes its regulations and policies to make the market more business-friendly.

Least competitive

When voted by peers in the region, Philippine SMEs were deemed the “least competitive.”

The survey noted that SMEs in the country were still hampered by high costs of doing business and corruption in the bureaucracy and lousy regulations, on top of the ongoing crisis.

In terms of financing, the local SMEs said the lack of institutions willing to lend to small businesses (according to 54 percent of respondents) and bureaucracy and red tape in processing applications (53 percent) were among the major roadblocks to availing of capital in the Philippines.

Majority of the Filipino respondents called on the government to provide better access to capital, financing or loans for SMEs; assistance to education and training; and efficient bureaucracy and regulations, according to the survey.

The 2009 Asia Business Monitor was conducted by the package delivery company UPS in 12 countries in the Asia-Pacific region. This fifth edition of the survey polled a total of 1,200 SMEs—100 of which came from the Philippines—from January to February this year. –Ben Arnold O. De Vera, Reporter, Manila Times