Economic Impact of SMEs

Businesses around us touch our lives everyday. We are confronted by the goods and services they produce round the clock anywhere we are and whatever we do, may we be at work in the office, on the road, and even at home. The availability and movement of food in the market, the water and electricity we use, are all being produced by businesses. The behavior of businesses around us spells out the economic growth of our country.

They could be classified in terms of the products or services they sold, the activities they are engaged, or by their size as indicated by their financial net worth. The centrefold of this paper is all about the economic impact of Small and Medium Enterprises (SMEs) in the Philippine economy. For better appreciation, the paper will describe how Small and Medium Enterprises are defined and categorized as such. Further in the discussion would include SMEs economic importance and how do they contribute to the social development of a country.

Correspondingly, considering that they are a contribution to resolve social concerns, statements of support of the government to promote their growth in the economy are also embodied in the paper. Furthermore, in order for SMEs to continually thrive, drivers for development such as: conducive economic system, socio-cultural trends, and financial literacy shall be expounded. Finally, summary of salient points and derived conclusions shall carefully be presented. Small and Medium Enterprises (SMEs)

In the Philippines, the SME is defined by RA 6977 as amended by RA 8289: Magna Carta for Small Enterprises, as any business activity or enterprise, engaged in industry, agri-business and/or services, whether single proprietorship, partnership, cooperative or corporation whose total assets, inclusive of those arising from loans but exclusive of the land on which the particular business entity’s office, plant and equipment are situate should fall within the range of PhP3,000,000. 00 to PhP100,000,000. 00 (Figure 1.

Categories of SMEs). The government recognizes that small and medium scale enterprise has the potential for more employment generation and economic growth, and therefore, can help provide a sufficient industrial foundation for the country. Thus, the declaration of the policy expresses the undertaking of the government to promote, support, strengthen, and encourage the growth and development of small and medium enterprises in all productive sectors of the economy particularly rural/agri-based enterprises.

Economic Importance of SMEs Stakeholders of SMEs are called Entrepreneurs who are engaged in an economic activity called entrepreneurship that identifies an economic need, considers offering business solutions, proceeds to assemble the resources required, and assumes the risk of either succeeding or failing to satisfy the need. Through the involved processes of engagement, the business henceforth play important roles in the development of the economy (Medina, 2003):

Providers of economic opportunities for those people who are no longer comfortable to live as employees for the rest of their lives, seek other option by engaging in small business operations to improve their economic lives and contribute to society; b. Providers of products and services to consumers, which are oftentimes no longer feasible for big business operations to produce and are naturally passed on to small businesses, which could be in a form of subcontracting or outsourcing agreement.

Suppliers of products and services to other businesses that require raw materials, semi-finished parts, finished components, or even business processes like credit collection, accounting, human resource, etc. that are not considered core-competence yet an added value to the goods and services of certain enterprises, which again could be in a form of subcontracting or outsourcing contracts; d. Distributors of products and services of some manufacturers that opt to concentrate full time in production and employ enterprises that are focused on quick distribution and even hub operation for just-in-time inventory;

Supporters of government by way of paying business permits, taxes, and remittances, out of its economic activities; and f. Providers of employment. Government Support to SMEs Recognizing the importance of SMEs in the economy, the government in turn had created the Small and Medium Enterprise Development Council (SMED) to spur the growth and development of small and medium enterprises throughout the country in order to attain countryside industrialization (R. A. 8289):

a.By assuring, through the establishment of adequate support structure, and the creation and promotion of an environment conducive to the viability of these enterprises, establishment of mechanisms, the access and transfer of appropriate technology needed by small and medium enterprises; b. By intensifying and expanding programs for training in entrepreneurship and for skills development for labor; c. By facilitating their access to sources of funds; d. By assuring their access to a fair share of government contracts and related incentives and preferences; e.

By complementing and supplementing the financing programs for small and medium enterprises and do away with stringent and burdensome collateral requirements that small entrepreneurs invariably find extreme difficulty complying with; f. By instituting safeguards for the protection and stability of the credit delivery system; g. By raising government efficiency and effectiveness in providing assistance to small and medium enterprises throughout the country, at the least cost; h. By promoting linkages between large and small enterprises, and by encouraging the establishment of common service facilities;

By making the private sector a partner in the task of building up small and medium enterprises through the promotion and participation of private voluntary organizations, viable industry associations, and cooperatives; j. And by assuring a balanced and sustainable development through the establishment of a feedback and evaluation mechanism that will monitor the economic contributions as well as bottlenecks and environmental effects to the development of small and medium scale enterprises.