Micro, small enterprises told to work on upgrade

CEBU, Philippines - Same as large firms, micro and small enterprises (MSE) are encouraged to work on their upgrading to contribute further in the economic development of the country.

The Department of Competitiveness and SocialDevelopment (DCSD) of theGerman Development Institute / DeutschesInstitutfürEntwicklungspolitik (DIE) recommended two mechanisms that developing countries could adopt towards enterprise upgrading.

Department head Tilman Altenburg tackled the significance of MSE upgrading based on evidences collated from the three countries during a recent roundtable workshop with the local stakeholders, industry players and government agencies.

These three middle-income countries which include Egypt, India and the Philippines are reported to have high number of MSMEs in the different world regions.

Altenburg cited that unlike MSEs, large firms tend to perform better and pay better than the small-scale business since the former are more productive and innovative.

For the latter to attain increased productivity, she said that entrepreneurs could incorporate two strategies such as the entry-competition-exit approach and the gains-from-specialization mechanism.

She said that the entry-competition-exit approach involves the entry of newcomers challenging the existing players and enhancing competition due to increased pressure on performance.

“In market economies, productive employment is mainly created through entry and exit of firms in a competitive setting,“ she added.

The gains-from-specialization mechanism, on the other hand, entails the complementary specialization between large and small firms as suppliers, franchisees, and inventors that could cater for niche markets since only few SMEs compete in mass products.

However, Altenburg noted that it was found out that these two mechanisms do not work well in developing countries.

She cited that although there are a lot of entry and exit of enterprises, there is a little reallocation of production factors towards higher productivity such as market segmentation.

Other factors include the wider productivity gaps, less interaction between large and small, short value chain, strong vertical integration, few creative spin-offs and  acquisitions, among others.

Last year, DIE has conducted a three-day country research project on “Micro and Small Enterprise Upgrading in Egypt, India and the Philippines” together with its partners in Germany and project countries.

It was intended to determine critical success factors for enterprise upgrading and derived conclusions and action points for policy makers, decision makers, researchers and other key stakeholders. /JOB