Problems and prospects of SMEs

With the population increasing at a rapid rate government planners are afraid that the unemployment rate will increase under conditions of a stagnant economy. Unless moves are made to increase the utilization of labor and productivity both in agriculture and the sector in manufacturing, which consists of cottage industries and small and medium enterprises in the villages. It has therefore become the policy of our government since its countryside development drive to advance the economic lot of our rural artisans. The development of small and medium enterprises strategy in the achievement of socioeconomic growth has therefore become the cornerstone of socioeconomic development planning.

The emphasis being given to small and medium industries is based on its tremendous po-tentials in the pursuit of three prime national goals: employment generation, accelerated socioeconomic development of the rural areas and wider participation by all income classes in economic development. 

The potential of small and medium industries to generate employment is generally appreciated. Small and medium industries trend to be labor intensive, to avoid high capital investments. 

The potential assumes great importance in the light of more than half a million new entrants into the country’s labor force each year. 

The desire to achieve a wider participation of all income classes in industrial development is also another factor behind the national policy to vigorously promote small and medium industries in the countryside. The strategy of small-industry promotion will broaden the ownership of the industrial enterprise and help form a larger middle class in order to enable greater sharing of income by the population. 

Small and medium firms are often handicapped in obtaining capital and credit owing to greater unit cost of small transactions, greater risks and other factors. By reason of smallness and because of lack of specialized staff, small and medium industries are beset by many problems, notably lack of management and technical know-how, difficulties of accessibility to source of financing, and various marketing, production, personnel and organization problems. 

It is towards alleviating the situation of small and medium industries and assisting them in their problems that the commissions for small and medium industries have been established. 

Small and medium enterprise are defined as any business activity or enterprise engaged in industry, agribusiness/or services, whether single proprietorship, cooperative, partnership or corporation whose total assets, inclusive from those arising from loans but exclusive of the land on which the particular business entity’s office, plant and equipment are situated, must have value of not more than P60,000,000. 

Small and medium industries generally have relatively less specialization in management. The manager and perhaps a few assistants handle production, finance, purchasing, personnel, sales and all other aspects of the business. This characteristic gives these industries certain special needs for technical advice and assistance not needed by larger enterprise. 

There are three main types of manufacturing activity in the country today: cottage industry which is small in scale and frequently confined to a single household as the name implies; small scale industries that use modern techniques which produced such items as radio sets, motor bicycle parts, electric motors, furniture and so on; and large scale industries, using large capital investments and raw materials such as chemical plants, metal fabrication, sugar and coconut oil mills, textile manufacturing, etc. 

SME development

The small and medium industries should be encourage to manufacture simple consumer goods and farm implements to supply among others the needs of large scale industries within their area. This occur because of the policy of encouraging industries to be horizontally integrated instead of vertically whereby large companies follow by subcontracting schemes and provide technical assistance to small and medium size enterprise. The urban SMEs should be assisted to supply the components required by larger companies. This role of the urban SMEs as suppliers of component products to the larger companies should be given impetus through the local content programs of the government. It can be done by scheduling the amount of local content that manufacturers should be achieved and accelerated by end manufacturers through subcontracting arrangements for components and intermediate materials with existing SMEs in the urban area. This arrangement can offer good opportunities to the urban SMEs to grow, especially if technical assistance is provided by the larger company buyer who in most cases, is linked with international companies either as a subsidiary, joint venture partner or by licensing arrangements for the end product.

Dr. Jose V. Romero had his economic training from Cambridge, George-town and the University of Asia and the Pacific. He has written books and was a former publisher, civil servant here and abroad. He had a stint in the diplomatic service which has equipped him with a world view of things. Today he is both in business and the academe with a professorial chair in political economy which allows him to dissect knotty economic as well as political issues affecting the rural areas whose populace comprise the alienated and margi-nalized. Accordingly, his column, “perspectives” is an attempt to examine the major concerns of the small and medium enterprises who suffer from lack of access to credit and markets, technology and training and competition from large enterprises that often wield mono-polistic and monopsonistic powers in the countryside. –Jose V. Romero Jr. Ph.D., Manila Times

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