Making MSMEs more productive and more competitive through collective action

Nick Poblador.

Micro, small and medium-sized enterprises (MSMEs) comprise 99.51 percent of businesses in the Philippines. Yet they employed 62.66 percent of workers and accounted for a mere 35.7 percent of value added in 2020. These data clearly show that labor productivity among small businesses in our country is extremely low.

Small business enterprises are known to suffer from two major disadvantages:

ʎ Lack of access to modern production technologies and,

ʎ disadvantages associated with smallness.

However, over the past several years, these disadvantages have largely been overcome by developments in production technologies, and models of business and industrial organization, which effectively enable MSMEs to virtually scale up their operations.

Advantages of being small

Small firms enjoy certain advantages over their bigger competitors:

ʎ Small firms enjoy marketing and logistical advantages over their larger competitors because they are more specialized in their operations and are more focused on the specific needs of their target customers and the specialized capabilities of their input providers.

ʎ Small businesses have the added advantage of being more agile and flexible compared with their large competitors and are more ready and able to adopt new technologies as they emerge. Moreover, unlike most large-scale enterprises, MSMEs are not heavily invested in existing technologies and are therefore undeterred by the costs usually associated with switching to new and more efficient production technologies.

ʎ Most cutting-edge production technologies and their countless applications, such as 3D printing, robotics and blockchain technology, to name but a few, are now as easily accessible to small business enterprises as they are to big corporations.

ʎ Finally, collaborative action enables small business to enjoy the advantages of large-scale operations.

Advantages of collaborative action

Partnering among themselves and with other institutions enable small business enterprises to produce, and distribute goods and services more efficiently.

On page 94 of my recently published book, Strategy in the New Age of Capitalism (UP Press, 2022), I wrote:

“The recent emergence of digitally driven business models allows small businesses to organize themselves into extended value networks (EVNs) by which they can transact business with one another and share information with the aid of powerful enabling technologies, such as blockchain and a multitude of AI (artificial intelligence) applications. By constituting themselves into large virtual productive organizations, small businesses can scale up their operations by using the internet, enjoy the benefits of large-scale production, capture value from network effects—and at the same time remain nimble and flexible in adapting to rapid and unanticipated changes in markets and technologies.”

Collaborative action also allows MSMEs to acquire resources at lower-than-market costs. This is made possible through what are known as inclusive business models (IBMs), solutions that provide access to economic opportunities to low-income communities in a manner that will make businesses more viable and sustainable.

IBMs are implemented through the active collaboration of business firms, government agencies, multilateral organizations, nongovernmental organizations and other social institutions. These collaborative strategies enable the participating institutions to produce resources at lower costs for all the participants, while at the same time providing basic services to low-income communities.

The following illustrative example shows how small businesses can share value with the community as part of their overall strategies for achieving their long-run business objectives.

Accenture Philippines is a multinational company that offers management consultancy, technology and business process outsourcing (BPO) services to corporate clients worldwide.

Targeting so-called “near hires,” those who lack essential employment skills but who are nonetheless “trainable,” such as out-of-school youth, the handicapped and indigenous communities, the company offers in-house training, personal development and other job preparation activities.

By partnering with colleges and training centers in offering language courses, multi-cultural studies and BPO services —such as medical transcription, financial reconciliation, paralegal research and tourism promotion—Accenture is able to pass on a significant portion of its recruitment, training and development costs to other organizations and share some of the benefits with other businesses, including many of its competitors in the BPO space.

Significantly, by so doing, it also contributes to the attainment of the United Nations Sustainable Development Goals by creating income and employment opportunities for many young job seekers from poor communities. INQ

(The article reflects the personal opinion of the author and not the official stand of the Management Association of the Philippines or MAP. The author is a retired professor of economics and management at UP-Diliman. Feedback at [email protected] and [email protected]).