Small and Medium Enterprise Development



Small and Medium Enterprise Development

Micro, small and medium enterprises (MSMEs) are important components of an economy, particularly of developing countries. In the Philippines, 99.5 percent of all firms are MSMEs and they account for 62 percent of private sector employment. However, they account for only 36 percent of the total Gross Value Added of all firms.

A number of studies show that SMEs face challenges that keep them from growing and reaching their full potential. Among these are access to finance, access to markets, inefficient business processes, and lack of technical knowledge. According to a body of literature, SMEs can potentially address some of these challenges by linking with large businesses through partnerships, networks, trade, and even competition. By partnering, trading, and networking with larger enterprises, SMEs can benefit from technology transfer, learning about more effective business processes, and access to a larger value chain.

Another challenge that MSMEs face is competition. Some anecdotal evidence says that one of the factors that pose a big threat to SMEs is competition, particularly from large businesses. Stories of small retailers closing down when a large mall opens in the same vicinity are popular anecdotes among those supporting this concept. On the other hand, an opposing body of literature argues that competition from larger firms can actually help SMEs by forcing them to be competitive and giving them ideas about more efficient production processes and management.

The AIM RSN PCC aims to contribute to the nascent empirical literature on this issue by conducting a study on the linkages between SMEs and large businesses and on the effects of competition on small and medium firms. It attempts to complement existing literature on this topic by conducting a survey among SMEs in Metro Manila, covering topics such as partnerships, networking, and trading with large businesses, its benefits and challenges, as well as the effect of and how they view competition. Through this, the AIM RSN PCC will attempt to look at the benefits of and constraints to linking with large businesses, and formulate policy recommendations on how SME-large business partnerships can help develop small and medium firms and contribute to shared prosperity.