Doing (Small) Business In The Philippines ( Incentives / Disincentives )

An important consideration when deciding to go into business is the external environment in which it will operate. Is the environment a positive one for business in general and for your own enterprise in particular?

As an entrepreneur, you can control your internal environment. You can put in place productivity and quality systems, train your employees to be more productive or more quality-oriented, acquire new technology, etc.

On the other hand, your external environment is hard to control. You can only respond or adjust to the changes there.

The external environment is essentially composed of the interaction of political-legal, economic, technological, and intra-industry structures. Thus, the environment is affected by political upheavals, technological advances, domestic and foreign market developments including price fluctuations, inflow and outflow of capital, and so many other things.

Most importantly, you must study the environment of economic and industrial policies, business laws and regulations, and system of business incentives and disincentives.


Incentives to Small Enterprises

Without entrepreneurs, there can be no production, innovation, and risk taking. That is very clear. In turn, without production, innovation, and risk taking, a country does not move forward. That is also very clear. Governments, past and present, have learned and have made entrepreneurship a priority in the economic program.

The creation of three million new entrepreneurs tops the 10-point economic agenda announced by President Gloria Macapagal-Arroyo in her 2004 inaugural address. The agenda also includes the creation of 6-10 million jobs through more opportunities to entrepreneurs and a tripling of loan amounts made available to SMEs.

Small enterprise promotion and development has, in fact, attained the status of a national movement, participated in by more than 50 government agencies each of which offers support services to the small businessman. The private sector has also joined the ”small is beautiful” bandwagon – including industry chambers, trade associations, schools and universities, civic and non-government organizations, and church-based groups.

The Small and Medium Enterprise Development (SMED) Council was created in 1991 to integrate and synchronize the various efforts. Chaired by the Secretary of the Department of Trade and Industry (DTI), the Council is composed of:

v  The Director General of the National Economic and Development Authority (http://www.neda.gov.ph),
v  The Secretary of Agriculture (http://www.da.gov.ph),
v  The Secretary of Labor and Employment
v  The Secretary of Science and Technology (http://www.dost.gov.ph)
v  The Secretary of Tourism (http://www.tourism.gov.ph)
v  The Chair of the Monetary Board (http://www.bsp.gov.ph)
v  The Chair of the Small Business Corporation (http://www.sbgfc.org.ph)
v  A representative from the private business sector, and
v  A representative from the private banking sector.

The SMED has an array of programs to assist small businesses. The areas of assistance cover finance, marketing, training and human resource development, product development and technology assistance, and other incentives. 

Finance

Government banks like the Development Bank of the Philippines (DBP), Land Bank of the Philippines (LBP), Small Business Corporation (SBCorp), Quedan and Rural Credit Corporation, Philippine Export-Import Bank, and the National Livelihood Support Fund, have agreed in 2003 to simplify and standardize lending procedures, lower interest rates, and facilitate loan releases to small enterprises under a unified scheme called SULONG.

Even before SULONG synchronized the respective programs of these banks, lending to small businesses, often with some special considerations, has been going on for quite a time already. Some, like DBP and SBCorp, are “wholesale” lenders that use commercial banks, rural banks, thrift banks and other financial institutions as “retailers” to reach out more readily to small businesses everywhere in the country.

For micro enterprises, countless micro finance institutions now proliferating throughout the country are doing a good job of providing small but quick and no-hassle loans that require no collateral. They provide an alternative to the so-called “five-six”lenders, who are actually loan sharks.  

Marketing

The DTI, through its various agencies, provide marketing support to small enterprises by means of:
v  exposure in local and international trade fairs, expositions, trade missions to various countries-trading partners, and other trade events through the Center for International Trade Expositions and Missions (CITEM),
v  provision of domestic trade database, including local suppliers courtesy of the Bureau of Domestic Trade (BDT), and
v  provision of export trade database and consultation services by the Bureau of Export Trade Promotion (BETP) and the Bureau of International Trade Relations (BITR). 

Training and Human Resource Development

The DTI, in cooperation with local government units and local industry associations, has set up SME Centers nationwide manned by business counselors who are trained to assist entrepreneurs in their finance, marketing, technology, and training needs.

In terms of formal training, entrepreneurs may check out the following services in SME Centers:
v  Skills and other production-related training – from the Cottage Industry Technology Center (CITC) and the Technical Education and Skills Development Authority (TESDA).
v  Entrepreneurship, managerial training, including business improvement – from the UP Institute for Small-Scale Industries (UP ISSI) and small business extension institutes of other schools and universities.
v  Export marketing training – from the Philippine Trade Training Center (PTTC). 

Product Development and Technology Assistance

For assistance in product design and development, the agency to approach is the Product Development and Design Center of the Philippines (PDDCP). For packaging design, testing and analysis, it is the Packaging Research and Development Center (PRDC).
On the other hand, the Department of Science and Technology (DOST) has a number of research and development institutes that undertake R & D for new products and product innovations. These include: The Industrial Technology Development Institute (ITDI), the Technology Application and Promotion Institute (TAPI), the Metals Industry Research and Development Centre (MIRDC), the Philippine Textile Research Institute (PTRI), and the Forest Products Research and Development Institute (FPRDI).

Other Incentives

Other than government support services, there are still other factors that make the country a viable site for business. According to an annual corporate survey, these include:
v  labor availability, quality and reliability,
v  market potential, size and quality,
v  positive attitude of Filipino workers,
v  literacy of workers,
v  low cost environment, including labor cost, and
v  quality and quantity of middle management and technical people.

Disincentives

On the other hand, certain business conditions in the country are seen to be problematic. The country is facing an oil crisis, an investment crisis. This oil crisis, though not just affecting the Philippines, is problematic because it is also affecting the rest of the world.

Industry has responded to it in many ways, like using alternative fuel and, of course, the inevitable – adjustment in product pricing.

What may be more worrisome is the investment crisis. The country’s foreign direct investment (FDI) rate has declined since 1997 and is among the lowest in Asia. Nevertheless, new investments help buoy up the economy. Most of these have been in call centers and business processes (e.g., data encoding, bookkeeping, inventory), and outsourcing.

A number of manufacturing companies have either closed down or downsized (staff or operations cut to size), contributing to an already high unemployment rate. On the other hand, export-oriented industries and the service sector have remained strong.

Other problem areas that a small enterprise needs to live with are:
v  corruption,
v  bureaucratic red tape,
v  poor infrastructure,
v  peace and order and security problems,
v  political instability, and
v  local market size, growth and access.

Corruption and bureaucratic red tape are said to be part of our Philippine society and culture. As such, these practices appear in all aspects of Filipino life, practiced by everyone in high or low status. Poor infrastructure, peace and order, and political instability are the results of a government leadership that is hard pressed to set an example of equality and love for country. When all the social and political problems have been minimized, only will the economy of the country recover.

SUMMARY
The chapter has given you a definition of a small business. It presented the strengths and weaknesses of going into business. It identified what qualities and skills an ideal entrepreneur must possess, and gave good reasons for the need to study the business environment prior to putting up a business.


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