Philippine Council of Deans and Educators in Business (PCDEB)

9th Annual Conference

and 3rd Annual Business Education-Industry Summit
Lyceum of the Philippines University
March 11-12, 2010

Effects of the Global Financial Crisis on

Small and Medium Enterprises (SMEs)

Dr. Reynaldo Bautista (SLU)

Ms. Freda Gawisan (DTI)
Ms. Marife Posadas (SLU)
Ms. Maria Joan Barlis (SLU)
 “Without the strength to
endure the crisis, one will not
see the opportunity within.
It is within the process of
endurance that opportunity
reveals itself.”

- Chin-Ning Chu
Business Strategist, Author, Neo Renaissance Woman
A research commissioned by:
Philippine Chamber of Commerce and Industries, Inc. (PCCI)
Baguio-Benguet Chamber of Commerce and Industries, Inc. (BBCII)

Saint Louis University &

Department of Trade and Industry - CAR

… to provide the “talking points” &

set the discussion foundation for the
18th North Luzon Area Business Conference
August 2009, Baguio Country Club
 ILO Estimates:

Global unemployment level will go up by 20 million

by the end of 2009 from 190 million in 2007.

Asian regional level:

113 million out of work in 2009.
>140 million plunge into poverty
Philippines
• not exempted
• not immune
• in January 2009, 18,641 lost their jobs.
mostly electronics and garments
• 33,548 working in reduced hours
Cordillera Administrative Region (CAR)
Stats from NEDA-CAR:

• growth of 1.8% in 2008 despite effects of the global

economic crisis
• slowest growth posted among the country’s 17 regions

• despite 7% increase in
construction, electricity,
and water, we
experienced a
slowdown in 46%
of total industrial output:
manufacturing (1.0%),
mining and quarrying
(5.3%)
Cordillera Administrative Region (CAR)
Stats from NEDA-CAR:

•growth areas:

 5.6% in services
82% increase in PEZA-registered BPOs
(SITEL, People Support, IHG)
 2.5% in agriculture sectors
12% increase in corn production
(also palay, cabbage, broccoli, carrots,
cauliflower, irish potato, etc.)
“The creation of six million jobs in
six years via more opportunities given
to entrepreneurs, tripling of the amount
of loans for lending to small and
medium enterprises and the
development of one to two million
hectares of land for agricultural
business. “
- GMA’s 10-Point Agenda

Presidential Consultant for

Entrepreneurship (March, 2005):
Creation of 3M entrepreneurs by 2010.
Thrusts: Advocacy and Education
About half of the target are expected to come from
the development of 2 million agribusiness lands &
the support of 3 million micro, small and medium
enterprises (SMEs), which are composed mainly
of the poor.
MSMEs account for 99.6% of the Philippines’
business enterprises and 69.1% of employment.

However, inadequate internal

capacities and support access,
limit the MSMEs’ contribution
to total GDP to only about
32% for the past 6 years.
 Respondents:
• SMEs in Baguio & Benguet
• > 60 SMEs
(≤PhP15M or ≥10 workers)
• bulk in Baguio and La Trinidad

Data gathering
techniques:
Questionnaire
(24 indicators;
6 qualitative
questions)
FGDs
KIIs
• varied business endeavors

 real estate
 manufacturing
 transport operation
 handicraft / furniture
 food / restaurant / bakeshop
 appliance
 construction / surveying
 store
 services (parlor, barber shop, spa, tailoring, etc.)
 Scales Used
Hypothetical
Ratings Descriptions
Mean Ranges

1 1.00 – 1.80 Not Experienced at All (NEA)

2 1.81 – 2.60 Low Extent (LE)

3 2.61 – 3.40 Moderate Extent (LE)

4 3.41 – 4.20 Great Extent (GE)

5 4.21 – 5.00 Very Great Extent (LE)

 4 Functional Areas

Human Resource/
Marketing
Marketing
Orgn. and
Aspects
Aspects
Mgmt. Aspects

Production Financial
Aspects Aspects
 4 Functional Areas

Marketing
Aspects

• promo/ad budget
• distribution of products/services
• product lines
• product development
• demand for products/services
• number of substitute products
 4 Functional Areas

Human Resource/
Marketing
Orgn. and
Aspects
Mgmt. Aspects

• number of employees
• number of working hours
• tasking
• provision of incentives/benefits
• trainings
• overtime/undertime
 4 Functional Areas

• volume of raw materials

• quality of inputs
• inventories
• type of operations
• spoilage/wastage
Production
• supply of raw materials
Aspects
 4 Functional Areas

• effect on profits
• expansion
• collection of accounts receivables
• access to credits
• cash flow
• sales on credit Financial
Aspects
The Findings…
 Effects of Financial Crisis on SMEs along
Marketing Aspects
Status
Marketing Aspects Decreased Quo Increased

64.52% 19.35%
promotion/ad budget 16.13%
(3.10, ME) (3.33, ME)

58.06% 25.81%
product/service distribution 16.13%
(3.33, ME) (3.38, ME)

38.71% 22.58%
no. of product lines 38.71%
(3.17, ME) (3.86, GE)

opportunity to pursue 45.16% 38.71%

16.13%
product development (3.29, ME) (4.08, GE)

51.61% 38.71%
demand for their products 9.68%
(2.94, ME) (3.50, GE)

no. of substitute products 22.58% 51.61%

25.81%
by competitors (4.00, GE) (2.88, ME)
 Effects of Financial Crisis on SMEs along
HR/OM Aspects
Status
HR/OM Aspects Decreased Quo Increased

41.94% 32.26%
no. of employees 25.81%
(2.92, ME) (3.10, ME)

25.81% 45.16%
no. of working hours 29.03%
(3.00, ME) (2.43, LE)

preparation towards 16.13% 67.74%

16.13%
multi-tasking (3.00, ME) (3.43, GE)

38.71% 32.26%
provisions of incentives 29.03%
(3.25, ME) (3.40, ME)

29.03% 41.94%
trainings 29.03%
(2.67, ME) (3.00, ME)

29.03% 41.94%
overtime 29.03%
(2.78, ME) (2.46, LE)
 Effects of Financial Crisis on SMEs along
Production Aspects
Status
Production Aspects Decreased Quo Increased

raw materials storage 29.03% 32.26%

38.71%
(inputs) (2.70, ME) (2.36, LE)

32.26% 48.39%
quality of inputs 19.35%
(3.00, ME) (3.00, ME)

29.03% 29.03%
ending inventories 41.94%
(2.44, LE) (3.00, ME)

29.03% 29.03%
automation 41.94%
(2.67, ME) (3.11, ME)

25.81% 22.58%
spoilage/wastage 51.61%
(2.38, LE) (2.88, ME)

35.48% 19.35%
abundance of raw materials 45.16%
(2.55, LE) (2.00, LE)
 Effects of Financial Crisis on SMEs along
Financial Aspects
Status
Financial Aspects Decreased Quo Increased

48.39% 38.71%
increased profits 12.90%
(3.44, GE) (2.75, ME)

25.81% 25.81%
expansion/contraction 48.39%
(3.00, ME) (2.88, ME)

51.61% 29.03%
ease/difficulty to collect A/R 19.35%
(3.00, ME) (2.67, ME)

ease/difficulty of accessing 38.71% 35.48%

25.81%
credits (3.08, ME) (2.82, ME)

35.48% 41.94%
cash flow 22.58%
(3.18, ME) (3.00, ME)

25.81% 41.94%
sales on credit 32.26%
(2.63, LE) (3.15, ME)
 Conclusions/Generalizations
Marketing Aspects:
…during financial crisis,
• SMEs tend to reduce their promo/advertising
budget & product distribution to moderate extents.
• Demand for their products moderately decrease
as their competitors increase the number of
substitute products, which are generally of
lower quality as what they offer.
• Changes in the number of product lines are not
a function of (financial) crisis conditions to
40% of SMEs. These conditions are seen as
opportunity for product development, thereby
increasing demand.
 Conclusions/Generalizations
HR/OM Aspects:
…during financial crisis,
• SMEs develop their employees toward multi-tasking
to great extents.
• While they cut down the number of employees,
they train them, and require them to render
overtime as they tend to increase the number of
working hours.
• 30% of them do not experience significant differences
in the incentives that they provide, and maintain
status quo in terms of working and overtime hours.
 Conclusions/Generalizations
Production Aspects:
…during financial crisis,
• Most SMEs do not experience product spoilage
during this condition, and changes in ending
inventories are moderately affected by demand
changes.
• Abundance of raw materials is not a function of
financial crisis conditions.
• The manner by which they operate is maintained.
 Conclusions/Generalizations
Financial Aspects:
…during financial crisis,
• Most SMEs experience reduced profits to great
extents, one major reason is their difficulty to collect
A/Rs.
• Business expansion or divestiture is far from being
considered as an option, at this time.
• Sales on credit increase as a result of decreased
cash sales.
 Recommendations

Strengthen the value-chain structure of SMEs

to promote high-value products/services

Streamline systems that provide support

programs and incentives for SMEs
• subsidy (by LGUs) in trade fairs/missions, trade-marching/promo
activities
• less stringent augmentation capital for recovery (existing bank
loans are not accessible to MSMEs/SMEs)
• discounted rates on LGU-organized events (Panagbenga, fiestas,
trade exhibits, market encounters, etc.)
 Recommendations

Facilitate passing of the Local Investment and

Incentive Code (LIIC)
• provision of employment for displaced workers
• provision of friendly business environment

Active linkages with the DTI, DOST’s PRDC,

Chamber
Establishment of a “Baguio Pasalubong Center”
or a trade house
Establishment of a Loan Facility Program by the
local Chamber
 Recommendations

Academe (the professional unbiased 3rd party):

provides the bridge between LGUs and the SMEs
via the local Chambers
• organization of relevant fora
• sustenance of entrepreneurial passion among students
• provision of community-driven researches
 Diyos ti agngina
kadakayo amin….

Effects of the Global Financial Crisis on

Small and Medium Enterprises (SMEs)
Dr. Reynaldo Bautista (SLU)
Ms. Freda Gawisan (DTI)
Ms. Marife Posadas (SLU)
Ms. Maria Joan Barlis (SLU)