Under AEC, how will MSMEs survive?

Question: We’re a group of MSMEs (micro-, small-, and medium-enterprises) that are more “small and micro” than “medium.” We’re functioning as some sort of cooperative although we haven’t formally organized ourselves as a co-op. We were all interested in your column of Oct. 3 about equipping ourselves for the AEC (Asean Economic Community). But you were talking about large companies in relation to the AEC.

Even those large companies are more scared than glad about the AEC. For example, we read about BDO’s president, Nestor Tan, saying that our banking industry won’t be big enough to compete with players like Bangkok Bank. He said that if we combine BPI, BDO and MetroBank, these top 3 banks will just be the size of Bangkok Bank which is No. 7 in Asean. Or consider Manny Pangilinan, who said in an interview that we’re not ready for the AEC. If that integration is to happen, he said: “I don’t think it will be in my lifetime.”

If these large companies are wary, what about us who are micro- and small enterprises? You talked about the AEC as growing our business in a growing Asean market. But if we listen to what Nestor Tan and MVP are saying, it would seem like the practical question is: “Will we even survive?” Please help us better understand Asean Integration 2015 and how to be “better equipped” for it.

Answer: When we think and speak from a sense of fear, we will tend to focus on what’s scary. But the reality of the AEC is both market risk and market opportunity. Let’s balance the scale and see AEC for the market opportunities it offers and what you in the MSMEs can do to take advantage.

Where are the market opportunities? The AEC “roadmap” has identified 12 “priority” markets: agro-based products, air travel, automotive, “e-Asean,” electronics, fisheries, healthcare products and services, rubber-based products, textiles and apparel, tourism, wood-based products, and logistics.

My own consumer coping behavior survey series shows they are in 159 specific product and services categories. While this survey research studies are Philippine-based, their market opportunity insights as a process are readily adapted in any of the 10 Asean countries. I will be presenting the highlights of this survey series when I speak at the Asia Society’s “Understanding Asean Series” on Oct. 21.

Opportunities for market entry and business-growing are everywhere. This implies that the central challenge of the AEC to all of us, micro-, small, medium and large enterprises, is in how to take advantage of those market opportunities. So let’s talk about this “how,” where small and micro enterprises are concerned.

Over the past decade, I’ve helped more than a couple of micro- and small enterprises both as marketing consultant and market researcher, not as a footnote academician. As chairman of Bayan SMRD Foundation, I’m now helping much more than a couple.

When we start getting deep into the AEC, our business-growing challenge will be in how to effectively and efficiently participate in any of the markets of the Asean countries including our own. A first test is where to direct your market entry. Here’s a benchmark case to learn from.

In the 1980s, ACS knew the unchanging technology of laundry detergent and wanted to be part of the detergent market. The owner of ACS, who was a chemical engineer, knew that he had no chance at gaining revenue by entering the consumer market for laundry detergent. However, A. C. Supetran had developed a detergent specifically suited for washing machines. At that time, the number of washing machines in households was so thin that the revenue potential from a washing machine detergent was less than one billion pesos. That’s too small a market for the big 3 consumer companies of P&G, Unilever and Colgate-Palmolive to bother with. But it’s big enough for a small enterprise like ACS. Washing machines were then with the institutional market of hotels and restaurants. That’s the market segment ACS entered and had almost all to itself. The lesson is clear: Search and identify a sub-segment or niche where you can bypass the dominant big competitors.

What about the really small micro enterprises? You said that you’re “some sort of cooperative.” Then, set up as one and grow your business as a co-op. You gain some scale that way. Or, as an organized group of micro enterprises, you can supply the service needs of some medium or even large enterprise.

Just think of what those micro suppliers functioning as a group are doing to serve the needs of large restaurants for their vegetables, fruits and even eggs and fish requirements.

But in all the above, you have to pass a second test. That’s the pricing test. Are your goods and/or services cheap but with quality enough to favorably compete against known cheap but quality sources from other Asean countries, not to mention China?

This is essentially a productivity and efficiency challenge. It’s about using your direct labor and production or operations resources for more quality output. That’s what is meant by “getting more for less.” You just have to keep on improving your productivity or else.

Development Academy of the Philippines still calls itself the productivity center of the country. Seek their advice and help. Or you can go to empathetic TQM (Total Quality Management) experts like Professor Rene Domingo of AIM. Whichever source you tap, you have no choice but to get your productivity up to and beyond par versus your Asean competitors.

Keep your questions coming. Send them to me at [email protected].