Introduction to Transportation and Communication SMEs comprise the bulk of Philippine businesses. By making up 99.

6% of the total number of establishments in the nation and employing 69.9% of the workforce, SMEs as a whole become a formidable force in the economy. (Leano) Given these numbers, SMEs may well be the deciding factor in the nations economic

development. Unfortunately, such potential in theory is lost in practice when various factors, socio-political, economic, or otherwise come into play. Despite being prolific in terms of numbers as well as in employment, SMEs only account for 32% of the nations added value. (Industry) Why this is so and how it can be remedied will be discussed further in this section. It must also be pointed out that this section aims to highlight the importance of SMEs in regional development. In all reality, the state of even the most immense and powerful entities is based upon the state of its smallest constituents. In the case of entire nations, this roughly translates to the fact that general regional economic health will reflect strongly on the nations overall economic health. Given this, it can be said that regional development influences national growth. Such development can help

sustain the growth of national economy through population distribution, more job opportunities and hence, increased productivity rates (Mercado 2002). The importance of regional development has led to the legislation of many economic policies such as granting loans to potential businessmen and the rest who want to be involved in business to set up Small and Medium Enterprises (SMEs) in the provinces. SMEs can greatly increase regional growth and maintain stability by providing job opportunities which leads to contributing higher outputs to the country. However, due to political instability, lack of funds and manpower, lack of access to credit banking, improvements have become sluggish and to some extent,

even non-existent. Poor transportation system and the lack of development in information communication technology (ICT) further exacerbate the situation. With such perverse problems in the nation, SMEs could hardly be able to survive in such an unfriendly business environment much less in the face of international competition. The transportation and communication systems are the main issues that will be solved here in this section since they are representative of the main sectors that cause the problems of establishing SMEs across the regions in Philippines. On one hand, this section will argue that infrastructures such as railroads, airports, roads and etc. must be built with efficiency and proper funding from the government so that transaction cost will be lowered. Given this, businessmen can be assured that their products being shipped to different regions will be safe. On the other hand, in the sector of ICT, main telecommunication companies must have a tie-up with the government to specifically help SMEs to expand and grow through improving network coverage in regional areas and lowering communication costs for them. In addition, it should be noted that this section will use Neoclassical Economics, particularly the theory of interregional equilibrium to further prove the need of regional development through transportation and communication systems. Since neoclassicalists focus more on the allocation of resources throughout the country rather than on full utilization of employment, they believe that regional development can only be achieved when imbalance among regions is non-existent. (Mercado 2002) The theory states that regional imbalances in supply and demand manifest themselves in differences in prices of commodities. (Mercado 2002) In other words, if a specific region specializes in a certain product by way of labor or capital proficiency, it will manage to produce the said product at a price relatively

lower than that of other regions. On the other hand, of course, these other regions will have specialized products with relatively lower prices as well. Should relevant factors remain the same, price levels will remain the same for each region with each having a high supply of their specialty product and lower supplies of other regions products. If, however, improvements in transportation and communications technologies are implemented, product mobility is boosted. By boosting product mobility, prices for each regions specialty product will lower due to the increased inter-regional supply, while their own respective products will experience price increase due to the decreased local supply. With these changes in mind, the prices will then converge on an inter-regional price equilibrium. Productivity in Transportation As discussed earlier, SME development is partially hampered by

insufficiencies in the transportation section. While seemingly not much of an affair due to the long-standing existence of land, sea, and air-based transportation systems. Examples of such respectively include road and rail ways, seaports, and airports. Although these already exist, these are the products of a by-gone era, far outpaced and rather mediocre by their contemporary counterparts. These outdated systems are increasingly overwhelmed by the sheer weight of traffic, human as well as freight, borne unto them. This deficiency renders SMEs nigh helpless against more efficient or more established companies, both local as well as foreign. SMEs do not stand much of a chance against such competition because of the relatively higher transportation costs they have to incur in order to reach their target markets as opposed to the costs incurred by more developed companies. In order for SMEs to stand a chance

in such a harsh environment, they will have to be able to link up to their suppliers as well as each other for them to be able to close the competitive gap. Inter-regional Equilibrium and Transportation The idea of closing the competitive gap by way of improving linkages brings to light the neoclassical economic theory of inter-regional equilibrium. By its ability to more efficiently distribute the supplies and demands of the neighboring regions, inter-regional equilibrium is a phenomenon which would benefit SMEs. This is primarily because it would enable them to expand their products or services to other regions at relatively lower, most likely more competitive prices. The new prices and improved mobility granted by a revamped transportation system would enable the SMEs to gain access to newer capital from other regions as well. Given this, SMEs will then be given a fighting chance against their more established competitors. Proposed Improvements With the idea of inter-regional equilibrium highlighting the importance of the transportation sector, we must recall that our nations transportation infrastructure is anything but technologically advanced if at all reliable. Although the incumbent Arroyo administration has enacted several

improvements already, they are either half-baked or are implemented in rather limited manners only. Some examples of such projects would include the current road systems. Designed to span the entire nation, it never fully materialized. And although being improved over the years, including the years under the current administration, given the data as discussed, these same roads are being overrun with more and more vehicles. Another example would be the southern Luzon railway system. Despite being reopened recently, the infrastructure as well as the

equipment being used virtually remained the same. This does no wonders for its current reputation. Yet another major example would be the widely acclaimed RoRo ferry system. Despite its success, it remains to serve only the initial areas it was established. These issues must be addressed as soon as possible. The incumbent administration proposed and executed perfectly sound solutions to the

transportation problem yet we must still seize the initiative on these and pursue their expansion. The first of such issues would be the most visible of the land transportation systems the roads. As seen in the data provided by the NSCB and further illustrated in Table 1, a larger proportion of road vehicles belong to the public transport and freight industries. The sheer numbers of vehicles in these fields contribute to congestion problems in the nations road networks. This is further aggravated by the fact that only 22% of our roads are paved. (Javier 2008) With this in mind, the reconditioning and expansion of the road systems in order for the nation to properly address its increasing number of land vehicles and ageing infrastructure. In relation to land systems, we must recall that we are an archipelagic nation and that we cannot afford vast tracts of land for highways as these tracts of land are better used for agricultural or industrial production. To circumvent this problem as well as to improve linkages from region to region, we propose that the nation further refurbish and update its rail systems in order to accommodate a higher volume of freight. According Table 2, the railways are not being fully utilized for freight. Doing so is beneficial in the case of the SMEs especially those hard-pressed for expansion and revenue in the industrial sector. The cost of rail fare would be significantly smaller as opposed to road toll and transportation. In all, the current

system could be through the extension of the route and reconditioning of the trains that ply its distances. In addition to improving the systems reliability, focus on its sustainability is introduced as well. Local investors are encouraged to use the railways by the usage of tax cuts or fare discounts for their freight. As stated earlier, we are an archipelagic nation. Roads may be vital and commonplace, but roads cannot traverse oceans. In order for and to further encourage inter-regional island transactions to occur seamlessly, we propose the widespread implementation of the Roll on Roll off (Ro-Ro) Ferry system. While this has been undertaken already, we feel that its impact could be better felt if it were to serve even more areas. This will enable island-prolific regions to enjoy the benefits of inter-regional equilibrium as well. Improving regional linkages by way of rail and road networks go hand in hand to improving the transportation system by reducing cost and improving efficiency. Unlike other developing nations of our time, the Philippines already has the advantage of having existing transportation systems. What remains to be done would be to fine-tune and expand these systems to improve their efficiency. In turn, these improvements will encourage inter-regional SME activity and entail

movement towards national territorial integration.

Table 1 Registered Motor Vehicles in the Philippines

Table 2 Summary of Rail Transport Statistics (2004 2007)

Productivity in Communication

In the Philippines, there has been a myriad of improvements in the different sectors of the Information Communication Technology (ICT). Establishments of offshore plants and the developments of outsourcing operations have increased ever since 1990 (Zavatta 2008). Multinational corporations from both Western and Asian nations have helped the country reach its present state of technological advancement. Focusing on the outsourcing services, the different sectors of ICT are contact centers, software developers, Internet service providers, digital animation studios, and a back-office service providers (Zavatta 2008). The increased development in such area has greatly influenced the country so much that it creates sound communication systems in small and medium enterprises (SME) sector, especially in its manufacturing and agriculture subsectors. This section will discuss the benefits of improving ICT in manufacturing and agriculture and discuss specific economic policies that will further solidify these advantages.

ICT in Manufacturing Sector of SMEs The components or tools of ICT that boost the development of SMEs in Philippines are inbound and outbound logistics, operations management of manufacturing, marketing and sales, and after-sale service. First, inbound logistics makes communication with suppliers cheap and fast through Supply Chain Management. It is a process that helps increase productivity, efficiency of inventory controls, and increase sales through closer relationships and faster delivery lines (Kotelnikov 2007). On the other hand, outbound logistics establishes a much accessible link to other global nations by focusing on the outsourcing opportunities in the Philippines. Second, operations management of manufacturing helps improve the inventory system of the enterprise, making the inventory listings more

organized and transparent to the employees and to the customers. Third, marketing and sales will be furthered improved through e-commerce and e-marketing through websites (internet). And lastly, the after-sale service establishes a transparent interaction with the customers by asking them of feedbacks and suggestions through the Customer Relationship Management software (Kotelnikov 2007). Figure 1 Benefits of ICT Tools Categorized under Porters Value

(Kotelnikov (2007).

On one hand, with the increased demand for internet and fixed line and mobile phones due to the increasing number of SMEs in the Philippines, internet service providers and telecommunications companies are hard-pressed to widen their coverage areas of and provide Long lower costs for them. Communication Bayan

infrastructures

Philippine

Distance

Telephone

Company,

Telecommunications, Inc., Digital Telecommunications Phils., Inc. must also be improved. Government must give these companies a subsidy particularly for the sole purpose of expanding the manufacturing side of SMEs.

On the other hand, since these companies are privatized, they have the resources to replace outdated equipments with new ones to sustain the needs of the customers (Kotelnikov 2007). Information Communication Technology firms must also provide small-scale innovations to accommodate the SMEs better. Since they mostly provide technological advancements to larger scale companies, their innovations tend to be much more expensive, unattainable and complex. To earn more profits, they must create basic programs and systems that will also help the SMEs which are continually growing. However, to assure the SMEs that they are also being prioritized by ICT firms, the government must provide tax cuts for the telecommunications with their purchases. People from the Department of Trade and Industry (DTI) and Department of Transportation and Communication (DOTC) will have people to monitor the purchases of ICT firms for the SMEs. ICT in Agricultural Sector of SMEs The sectors of ICT can improve the productivity rates of the agricultural side of SMEs. Such sectors that must be taken advantage of are telecommunications, internet services and software developers. First, telecommunications, as mentioned above, include the fixed line and mobile telephony (Zavatta 2008). This makes the transaction costs cheaper and information dissemination faster. The people in this particular SME will have an easier time to contact suppliers and customers as well. Second, internet services should also be taken advantage because in this age of industrialization, it is the most powerful tool that connects everyone everywhere. This also lessens transaction costs because of Voice over Internet Protocol (VoIP) and Instant Messaging. They are all tools for communication and furthermore, will lead to an increase in regional developments (Mercado 2002). Through the help of this sector, the members of agricultural SMEs will be able to form linkages from

different regional areas. Online conglomeration will be organized. Innovations could also be found in the internet that can further boost the productivity and efficiency of the SMEs i.e. the components of effective fertilizers and soil, weather updates, effective tools and machines for faster production, and market prices and activities. Given this, there will be full utilization of the internet connection. Lastly, software developers can boost productivity and efficiency by giving the agricultural sector software and programs such as inventory system and order-delivery system. With these programs, inventory list is transparent both to the suppliers and customers, and order-delivery system is organized and fast. Software firms also develop feedback system for the customers so that the SMEs can monitor their performance (Kotelnikov 2007). Since the agricultural sector of the SMEs is further weighed down by the costs imposed by ICT firms on their innovations, they have become ignorant and resort to natural means of communication (Kotelnikov 2007). Given this happening,

government will impose tax cuts on the innovations of ICT and provide subsidies for their developments for the sole purpose of expanding SMEs. Government must also provide education for the members of agricultural sector on the importance of ICT in their businesses. Government officials will have a base in every region that caters to the needs of the businesses. This government base will also be in partnership with different telecommunication companies to cater the needs of regional areas where access of internet and phone services is challenging. There will be a terminal of computers which have the basic programs and software that can increase productivity and efficiency of the said businesses. Also, to further increase transparency, there regional bases will have direct contact to the national base.

A seamless communication system within the national and the regional governments creates investments and increased economic activity. With proper information dissemination, the credibility of the government will be strengthened. They will earn the populaces trust once again as well as enjoy the benefits of lessened investment and transaction costs. Given that, there will be greater investment opportunities for budding businessmen to set up Small to Medium scale enterprises. Regional economic growth will be stimulated, and through this, the national economic growth will also be boosted. Transparency mitigates risks, stabilizes the growth and removes barriers of access to the market flow. Under these circumstances, small and medium-enterprises will flourish and both regional and national productivity will increase.

Conclusion In the end, with proper transportation systems and communication lines, steps towards interregional equilibrium will be achieved. There is the perfect mobility of factors of production and commodities, which reduces excess demand and supply in some regions. Hence, prices will be equal among the regions and income levels will be equal as well. This could only be achieved when there is national territorial integration through sound transportation systems and

communication lines.