Acting without design, occupying oneself without making a business of it, finding the great in what is small and the many in the few, repaying injury with kindness, effecting difficult things while they are easy, and managing great things in their beginnings; this is the method of Tao. —Lao Tzu
Our recovery in the present and our prosperity in the future depend on the success of America’s small businesses and entrepreneurs. —Barack Obama
Thanks to Bayan Telecommunications (Bayantel) officials for inviting this writer to lunch at the Intercon Hotel with former Cory Aquino socio-economic planning secretary — now Institute for Development & Econometric Analysis (IDEA) chairman and University of the Philippines economics professor Dr. Cayetano “Dondon” W. Paderanga Jr. — to hear him discuss “20 Challenges & 10 Strategies for the SME Entrepreneur.”
Among the guests were top officials of Planters Development Bank and Intel. After his talk, The Philippine STAR was the only newspaper that sat down with Dr. Paderanga for a lengthy, exclusive interview and frank exchange of ideas on the true state of the nation.
Before going into Dr. Paderanga’s ideas, I ask all our election candidates and leaders to consider the following reforms I suggest for a truly dynamic, free-enterprise economy (not our present semi-feudal society) and a genuine political democracy here in the Philippines:
• Promote more small- and medium-scale enterprises (SMEs) outside Metro Manila and Luzon;
• Pass anti-trust laws that will ban or break up monopolies, duopolies or oligopolies in many Philippine industries like electricity, cement, broadcast media, cigarettes or shipping, which are bad for consumers, bad for the big businessmen themselves and bad for the whole economy;
• Cut the frustrating bureaucratic red tape and drastically reduce the level of political corruption (Iriga City Filipino-Chinese Chamber of Commerce president Benito Ngo said he heard that nationwide, the level of corruption is now at least 40 percent);
• Deliver more basic services like high-quality public education, decent medical care and better infrastructure to equalize opportunities and lessen the shocking level of nationwide poverty;
• Level the playing field by eliminating cronyism or sweetheart deals between politicos and their well-connected allies or relatives, and punish political, military or police VIPs for graft!
• Lower Philippine tax rates but be stricter about enforcing the correct payment of taxes by every citizen. Convince the public that our taxpayers’ funds are not being wasted with the present untenable situation of shamelessly excessive corruption. The Bureau of Internal Revenue (BIR) should be congratulated for having Deputy Commissioner Gregorio V. Cabantac going after VIP corporate and even celebrity tax evaders for the first time in history. But can we also remove the BIR from under the executive branch of government so that it can hopefully also go after the numerous VIP politicos and generals who do not pay or underpay their taxes?
According to Paderanga, who half-jokingly claims that UP “has the Philippines’ only real school of economics,” here are 20 challenges for Philippine SMEs in 2010:
1. Banks are wary of SME lending because it is costly — Indeed, banks think that too many small loans increase their operational costs and they believe small borrowers are riskier.
2. Information asymmetries raise the risks of lending to SMEs — Reports of satisfactory SME repayment rates “are mostly anecdotal or unverified,” credit verification and appraisal of SME borrowers are costlier, so interest rates are also higher.
3. Collateral takes precedence among lending criteria — SME entrepreneurs usually do not own real estate needed for collateral in bank loans, and banks seldom accept SMEs’ chattel mortgages, receivables or guarantees.
4. SMEs lack skills in preparing financial records — Lack of verifiable credit information or past credit records diminishes SME access to formal loans, also many and complicated documentary and other loan requirements discourage SMEs from getting bank loans.
5. Few SMEs maintain extensive banking relations — SMEs are usually informal; they only go to banks for deposits and checking accounts but less for formal loans. Even payroll and the trust banking services of banks are untapped by most SMEs.
6. SMEs need to be more financially literate — Many SME entrepreneurs rely on internally generated funds (which are often wrongly channeled to non-business or personal purposes); excess funds are rarely reinvested for business expansion, and SMEs often develop cash-flow problems due to lack of financial literacy.
7. Inadequate supply of skilled workers — SMEs can usually pay lower salaries and give less benefits, so good, skilled employees usually migrate to either bigger firms or overseas; therefore SMEs need middle managers.
8. The quality of Philippine education and literacy must be uplifted — Worker quality has “improved little and may have even deteriorated,” basic curricula must be strengthened like English, math and science.
9. Public programs needed to boost productivity in coordination with the academe and private sector — Training programs and consultancies should cover skills that SMEs actually need such as cash management or product development; schools and courses need more emphasis on business ideas and industry-specific skills and cases.
10. A huge proportion of SMEs are still not “e-ready” — Many SMEs have limited capacities for e-commerce, which is an untapped opportunity for growth, with telecom and Internet usage limited usually to basic needs and functions like telephone communications, Internet e-mails or research, and website advertising. Very few SMEs use the Internet to get more business.
11. Acquiring technologies can be prohibitive — Research and development need technologies!
12. Technologies need to be tailored to SME needs — Consult more with SMEs on their needs, encourage SMEs to innovate and adopt technological solutions to their needs.
13. Limited awareness of alternative technologies and support services — Technologies can streamline business processes and boost worker productivity, reducing overall costs.
14. Inadequate infrastructure hinders business and expansion — There’s a need to help SMEs flourish outside Metro Manila and Luzon by building more basic infrastructure. The government’s huge budget deficit shall limit new infrastructures needed to transport goods and raw materials.
15. The direct costs of doing business are high — Electricity, fuel, rent, taxes, salaries, communications — all these costs should be lowered!
16. Bureaucratic procedures remain burdensome — In terms of ease of doing business, a World Bank survey of 183 countries found that the Philippines ranks poorly at No. 144 compared to India at No. 133, Indonesia at No. 122, Vietnam at No. 93, China at No. 89, Malaysia at No. 23, Thailand at No. 12 and our neighbor, Lee Kuan Yew’s least-corrupt Singapore, at No. 1.
17. Public sector policies and institutions need strengthening — Fair and transparent, please!
18. SMEs need a more proactive perspective — Do away with the sari-sari store mentality of copying others in business fads or slick sloganeering; aim for sustainability.
19. SME links with big enterprises and industries are weak — SMEs can be subcontractors and suppliers to big firms, similar to what is done in China, Japan, Taiwan and South Korea.
20. Globalization is unavoidable — People in the Philippines are voting with their feet to seek higher-paying jobs overseas, large-scale and efficient exporters like China are beating out the competition, freer trade situations in ASEAN/China and other regions offer many threats and opportunities that SMEs should understand and meet head-on.
10 Strategies For Supporting SMEs In 2010
1. Review and redesign public or government SME financing programs.
2. Promote financial methods that do not require physical collateral.
3. Establish a credit registry.
4. Simplify lending requirements and processes for SMEs.
5. SMEs should consider outsourcing parts of their operations to cut costs and overcome lack of skilled, highly paid employees.
6. Review and revamp the Philippine educational system with more business-oriented values.
7. Build on existing information campaigns about business and disseminate to areas outside Metro Manila.
8. Help SMEs in technology acquisition and adoption by tax exemption, direct funding, etc.
9. Strengthen infrastructure and reduce costs/processes in doing business.
10. Forge partnerships between the private sector and the academe with government facilitation.
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Thanks for your letters; all will be answered. E-mail willsoonflourish@gmail.com or my Facebook account.