Entrepreneurship in the Philippines: Opportunities and challenges for inclusive growth

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Addressing widespread poverty is the single most important policy challenge facing the Philippines. Not only is poverty high when benchmarked against countries in Asia, but also the rate of poverty reduction has been slow. While the Philippine economy has grown at an average of 6 percent for the last five consecutive quarters (since 2012), poverty incidence remains above 20 percent of the population. The critical challenge is to spread the payback of this huge economic turnaround among the people, especially the poorest of the poor. They should feel the benefits of the growing Philippine economy.

Entrepreneurship can provide the solution by creating wealth, jobs, and social empowerment. If we are to address the issue of poverty with some degree of success, history tells us we have no choice but to actively encourage entrepreneurial ventures.  

Entrepreneurship in the Philippines

In the Philippines, entrepreneurship is viewed as important to empowering the poor, enhancing production, and as an impetus to innovation. The 1987 Philippine Constitution recognizes entrepreneurship as an engine of economic growth. Article XII Section 1 highlights the role of private enterprises in supporting equitable distribution of income and wealth, sustaining production of goods and services and expanding productivity, therefore raising the quality of life.

The Philippine Development Plan (PDP) further reinforces the thrust on entrepreneurship through trade and investment to achieve the government’s goal of economic development and job creation. Based on the plan, measures for macro-economic stability, employment, trade and investment, agribusiness, power-sector reforms, infrastructure, competition, science and technology, and anti-corruption are being pursued to strengthen Philippines’s competitiveness and contribute to job creation.

In 2011, there were approximately 830,000 business enterprises in the Philippines. Of these, 99.6 percent are classified as micro, small, and mediumsized enterprises (MSME) which are responsible for 38 percent of total job growth.

Enterprise development and competitiveness

Enterprise development in the context of competitiveness not only entails the ability to produce products that can be accepted globally but also the level of support given to enterprises to help them produce, innovate, and gain market access.

While relatively mature and free, enterprise development in the Philippines is beset with critical challenges. These challenges are found within the context of pillars identified by the United Nations Development Programme in its report Unleashing Entrepreneurship: rule of law, physical and social infrastructure, domestic macro environment, and global macro environment; a level playing field, access to financing, and access to skill development and knowledge.

If the challenges remain unresolved, gaps in enterprise development have the potential to thwart the country’s competitiveness and ability to effectively function within global production networks.

Rule of Law

Rule of law, which encompasses regulatory structures, policy environment, and enforcement of regulations, is one of the more important dimensions in assessing the competitiveness of Philippine enterprises. According to the World Bank’s 2013 Doing Business Survey, the Philippines ranks 138 of 185 economies with regards to the ease of doing business. Except for the indicator “trading across borders” where the Philippines fared in the top third of the rankings (#53), the country sits at the bottom third in all other enterprise development indicators such as starting a business (#161), dealing with construction permits (#100), registering property (#122), getting credit (#129), protecting investors (#128), paying taxes (#143), enforcing contracts (#111), and resolving insolvency (#165). Along these lines, it can be clearly noted that the Philippines’ regulatory environment for enterprise development is still weak and needs further reform, harmonization and standardization.

Taking the case of business start-ups for instance, when entrepreneurs draw up a business plan and try to get under way, the first hurdle they face is complying with the procedures required to incorporate and register the new firm before they can legally operate. The Philippines requires at least 15 procedures and takes some 30 or more days to start a business. Malaysia requires nine procedures and 24 days while Taiwan requires eight procedures and 48 days. The rest of the Southeast Asian region averaged 8.7 procedures and 46.8 days to start a business.

Access to credit

Another important dimension is access to financing. While specific laws such as the MSME Magna Carta and Barangay Micro Business Enterprises (BMBE) development specifically mandate financing for enterprises, obtaining said funds is a different story. Most lending portfolios require collateral accompanied by tedious documentation and other technical requirements that are difficult for MSMEs to comply with.  

An enterprise survey conducted by the Universal Access to Competitiveness and Trade (U-ACT) in 2008 revealed that access to capital and financing are two of the most problematic issues for enterprises, primarily MSMEs. Seventy-two percent of the total respondents, or nearly three out of four, observed that investment and/or capital are currently difficult to obtain. On the other hand, five out of 10 surveyed MSMEs regarded access to and cost of credit as problematic, in relation to their businesses. In fact, 14 percent strongly stressed that credit availability and cost pose a serious problem to the operation of their businesses.

Internationalization and global production networks

The rapid integration of economies and globalization of markets has influenced the evolution of entrepreneurship over the years. Thus, from the traditional concept of supporting the various factors of production, entrepreneurship now entails the capacity to see an opportunity, come up with an idea, and organize the capital, knowledge, partners and managerial skill needed to develop and sustain business activities through internationalized value chains.

Taking advantage of liberalized trading environments is an emerging challenge for Philippine enterprises. This is compounded by the reality of limited opportunities for productivity and innovation. The World Economic Forum (WEF) Global Competitiveness Index identified infrastructure, labor market efficiency, innovation, technological readiness, intellectual property protection, R&D spending by private companies, and availability of scientists as key areas in business and enterprise development where the Philippines is lagging.

Enterprises need to be supported by strong social and physical infrastructure, which include among others, labor productivity, laboratories, business incubators, business planning, marketing and branding, and conformance to international standards. All these should be linked to the supply chain while at the same time economic clusters found in local economies need to be developed to allow specialization and product complementarity.

Role of enterprise networks

In addressing the above mentioned challenges, there is a need to rally behind national advocacy to push entrepreneurship to the next level. This means nurturing micro-entrepreneurs from purely “survival” into “opportunity and innovation driven” enterprise owners. This puts a premium on the role of enterprise organizations such as chambers of commerce, industry associations and dedicated enterprise networks.

The OECD Working Party on SMEs and Entrepreneurship in its 2009 study on “Barriers and Drivers to SMEs Internationalization” undertaken by Kocker and Buhl points out that institutionalization of networks/social ties and supply chains is a key driver of SME international competitiveness. The study noted “the importance of network/social ties and supply chain links in triggering an SME’s first internationalization step and extending internationalization processes.”1

In the Philippines, apart from institutions like chambers of commerce and industry clubs, entrepreneurship advocacy is mainstreamed by the creation of enterprise networks like the Philippine Center for Entrepreneurship (PCE). PCE’s concrete goal is to spawn the creation of so-called “Go Negosyo Communities” everywhere. These are communities where the academic, business and government sectors are drawn into a triangle of almost seamless collaboration. In such an ecosystem, there is constant networking, mentoring and cooperation among professors, entrepreneurs, industry experts and venture capitalists, with the government providing support through a viable policy infrastructure. Every “Go Negosyo” community is distinguished by its ability to produce a continuous stream of start-up ventures.

PCE also seeks to embed strong entrepreneurship lessons into the school curriculum. If the goal is to develop a culture of enterprise and cultivate tomorrow’s competitive entrepreneurs, they must start at a young age. Primary and secondary schools can teach the values and develop the mindsets of an entrepreneur. At the college level, enterprise networks are looking at how to assist in the area of curriculum enhancement, providing manuals, training the teachers, and involving real entrepreneurs in the learning process.

Nurturing the entrepreneurship paradigm

Entrepreneurship is more than just an economic term — it is a way of thinking. Creating jobs, empowering people, and giving individuals access to better lives for themselves and their children is a wonderful gift. Today, it has become a dynamic, developing part of the economy promoting inclusive growth. Entrepreneurship is a way of inspiring creative individuals to pursue opportunities despite its risks.

In closing, the challenge for countries like the Philippines is to accelerate both the political and economic leadership that can muster social reforms through entrepreneurship. Entrepreneurs have the power to achieve great things. Entrepreneurs will emerge as the well-oiled wheels that will keep the economy going and the society efficiently running.

Ryan Patrick G. Evangelista is former Executive Director of Universal Access to Competitiveness and Trade (U-ACT). Research inputs were provided by Marlon Min and Jin Hyuk Kim of U-ACT.

Endnotes

1 OECD (2009), “Top Barriers and Drivers to SME Internationalization”, Report by the OECD Working Party on SMEs and Entrepreneurship, OECD, p. 13.

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