A road map to help SMEs participate in the global value chain

The ratification of the Regional Comprehensive Economic Partnership (RCEP) agreement by the Philippine Senate last February may be the push that Philippine small and medium enterprises (SMEs) need to go global.

The RCEP agreement covers one-third of the world’s population—roughly 30 percent of the world’s gross domestic product—and brings together 15 nations: Australia, Brunei Darussalam, Cambodia, China, Indonesia, Japan, South Korea, the Lao People’s Democratic Republic, Malaysia, Myanmar, New Zealand, Philippines, Singapore, Thailand and Vietnam.

As the largest free trade agreement in history, the RCEP is set to increase trade, investment and economic integration among Southeast Asian nations. It reduces tariffs on goods traded among RCEP members, simplifies customs procedures and streamlines trade documentation, enabling faster movement of goods and services. This opens doors for Filipino businesses to expand, reach new markets, work with new partners and investors and thrive globally.

While the capacity-building programs of the Department of Trade and Industry (DTI) have helped thousands of SMEs become internationally competitive, our SME participation in the global supply chain is still hindered by many factors. A lot of potential exporters do not have the capacity to export high-value products instead of raw materials. Mass production is also a struggle, as well as access to market information in export destination countries. SMEs also struggle with compliance in international regulations and licenses. Another issue is the lack of skilled labor, technology and cutting-edge equipment to beat out their SME counterparts in other countries.

To help SMEs address these struggles, we will delve into the steps Filipino businesses can take to leverage RCEP’s policies and bring their enterprises onto the international stage.

First, conduct market research.

It’s easiest to start with the RCEP countries that import your products and services at a large scale. Analyze which countries match your business objectives and target markets. Look at your foreign competitors in these countries and gather data on consumer preferences, cultural differences, regulations and market trends. Understanding the opportunities and challenges in each market will help you narrow down trade environments where you can operate with a competitive advantage. You may even be able to spot partnership and investment opportunities.

Next, identify your target market in these new trade environments.

They may not necessarily be the same as your local target market. Your target market in one country may not need bundle pricing, for instance; another country may prefer a more traditional approach to conducting business than what your team is used to. Your best sources of information are market reports, trade publications, industry organizations and even industry events, if you are able to travel.

Third, make an estimate of the market demand and market barriers in your chosen trade environments.

Is the market size large enough and do you have enough capital and runway to carve out a market share among your foreign competitors? Can you deal with trade regulations and tariff costs while still making a profit? Do you need international certifications and if so, how long and how much will it take to qualify? Forecasting models and test marketing can help with your estimate. Another way is to partner with local professionals and organizations with a strong knowledge of the local market, cultural norms and business practices.

By conducting this preliminary research, you’ll either find new markets for the taking—or discover that your business is not quite ready for global expansion. For both cases, you can always seek government support and partnerships to facilitate your global trading journey. DTI and organizations, such as PhilExport, have trade missions and business matching initiatives that can help you forge connections with potential international partners. For financing, DTI’s financing partner, First Circle, offers a free-to-open and noncollateral revolving credit line that can be used to support operating expenses and fund exporting opportunities.

From here, develop your export strategy for entering the international market. Take your target markets and prioritize them based on market size, growth potential and compatibility with your current business offerings. You’ll also have to adapt your marketing messages, packaging and pricing to suit your new market.

Digitalization strategy

An important part of your business strategy is the use of digital technology and local expertise to manage your operations overseas. By incorporating digital tools, such as social media, e-commerce and market intelligence tools, you’ll be able to establish your brand presence and expand your reach. Local distributors and salespeople are a cost-effective way of entering a new market, while local account managers can provide new clients support even after a sale is complete.

Another crucial part of your strategy is ensuring a robust supply chain for your new markets. Your logistics, inventory management and distribution channels will need rigorous testing and review to ensure timely delivery of products and services to other countries. For instance, while global logistics providers can streamline your operations across different countries, local logistics partners will have a better understanding of customs and trade regulations. Balancing these global and local considerations will help you build a more agile supply chain.

With the RCEP’s policies on tariffs and trade among member countries, Filipino businesses will have an incentive to become more resilient and competitive on the world stage. By understanding the RCEP’s benefits, conducting thorough market research, developing robust export strategies and seeking government support, more SMEs can navigate the complexities of international trade and unlock sustainable growth, global recognition and success on a global scale. INQ

This 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 NextGen vice chair of MAP ICT Committee and the vice president for external relations at First Circle. This article is co-written with Jess Jacutan, First Circle’s content marketing lead. Feedback at [email protected] and [email protected]