SMEs told to adapt to change, leverage on AEC business opportunities

With the 10 member-states of the Asean fully integrating as one economic bloc, small and medium enterprises (SMEs) in the region, especially those in the Philippines, are encouraged to address the challenges they face and leverage on the opportunities this regional milestone brings.

“SMEs in Asia are currently in a good place with the Asean integration, which opens opportunities for exponential growth,” FedEx Express Managing Director for the Philippines John Peterson said during the recent PASIAWorld Conference at the Marriott Hotel in Parañaque City.

Comprising 96 percent of all the registered businesses in Southeast Asia, SMEs generate jobs and livelihood means that are pivotal in achieving sustainable economic progress and development within the region.

Since the members are diverse, the Asean Economic Community (AEC) had set a common vision, mission and strategic goal for the integration.

The region is also committed to promote the region’s SMEs to be globally competitive, inclusive and resilient through innovation, entrepreneurship and exports.

With the AEC in place since 2015, it has opened vast opportunities for both the large businesses and SMEs, including introduction of new products, enhanced market access and internationalization.

’Lifeblood’

REPRESENTING 98 percent of all the listed entities in the Philippines and employing more than half of the domestic work force, the SMEs are considered the “lifeblood” of the country’s economy.

Seeing that local small-scale businesses surpass that of the region percentage-wise, they are seen pivotal to Southeast Asia’s economic upturn.

“We see the Asean integration as a great opportunity for Philippine SMEs. It will be easier for the country to contribute to the region’s strong economic growth and intraregional trade,” the top executive said. “This is important as SMEs are seen as a key economic growth driver for the country in the long term.”

Larger than life

CHALLENGES linger, however, as world trade becomes larger than life for domestic business players.

Aware of the challeges, local SMEs deal with these problems to grab the opportunity for business growth driven by the regional integration.

As expected of them, they cited the increase in competition, internationally (38 percent) and locally (37 percent), as the most common challenge they face.

To overcome this, SMEs should think big and set their mind on investing in training, market research, new technology and services, instead of reducing costs to become more financially viable.

Good thing the national government put SMEs at the front and center of the regional trade agenda.

In doing so, the state is implementing initiatives to cultivate an environment that empowers them to prosper and seize opportunities in the international market.

Through its Small Enterprise Technology Upgrading Program (SETUP), the Department of Science and Technology helps SMEs develop world-class products by enhancing the quality of their production and services.

SETUP offers technical assistance and consultancy services, conducts trainings and seminars, provides laboratory analyses, helps in product labeling, and makes industry-standard equipment and other technologies available to SMEs.

The Department of Trade and Industry’s Philippine Export Development Plan supports them by giving more access to funding for market prospection, product development and market diversification.

Its strategies are centered on harnessing a national innovation system, which involves unlocking the flow of knowledge and information among stakeholders and providing incentives for collaborative research and technology development.

Leveraging the digital world

THE ever-changing technology and cyber world have been beneficial for small-scale entities, such that they provide them the channel to reach markets beyond their borders.

By tapping social-media sites, instant messaging and business apps, 80 percent of SMEs reported revenue hike.

Social-media platforms allow them to reach their existing consumers more effectively and, at the same time, touch base with new markets worldwide.

Given this, Filipino SMEs are deemed in a prime position to take advantage of cross-border e-commerce.

Considered the “social-media capital” of the world, there are over 44.2 million Internet users in the Philippines. Approximately, 937,000 local SMEs tap into this market.

Peterson cited, for instance, online shops (whether on personal websites or on Facebook) that are becoming more popular.

“These platforms are readily accessible on one’s smartphone. It would not be an exaggeration to say that these technologies are now essential to conduct business. Consider this trend as you eye regional expansion,” he said.

In a competitive market landscape like the AEC, he reminded the local SMEs to diversify their offerings and prioritize their customers’ wants and needs.

Braving cross-border trade

MINDFUL that many small-time entrepreneurs are scared to engage in international trade due to varying tax schemes, laws and governmental processes among countries, the FedEx Express managing director for the Philippines pointed out that there are a lot of existing agreements that business owners can use as a starting point for expansion.

For those who want to trade within the region, he suggested for them to consider the Asean Free Trade Area (Afta) that promotes mutual and cooperative growth with its reduced tariff scheme.

Under the Afta, they can enjoy access to the region’s markets at a tariff rate of zero to 5 percent on nearly 8,000 products.

But Peterson said local SMEs should not only limit their horizon within the region, as there are bigger opportunities beyond Asean.

“If you want to explore the South Asian market, you may want to take a look at the largest FTA in the world: the Asean-India Free Trade Area,” he cited.

With a market of more than 2 billion people and a combined GDP of $3 trillion, the FTA liberates tariff for around 90 percent of the products in the area, including palm oil, coffee, tea and pepper.

For those who look at Japan as the next destination for their venture, he recommended leveraging on the Asean-Japan Comprehensive Partnership.

With the agreement covering the Rules of Origin, products with 40 percent of raw materials coming from the region can share materials or production with members of the partnership, without losing origin status.

“You can also look into the Philippines’ ties with Europe,” Peterson added.

At present, the country enjoys duty-free privileges with 28 countries from the European Union via the Generalized Syatem of Preference.

Through its membership in the European Free Trade Association, the Philippines is also able to export over 6,000 products with no tariff to countries like Iceland and Switzerland.

“Use these existing structures to your advantage as you eye global expansion. Build your networks and utilize digital commerce once you have established your partnerships and client base,” he said.

Role of logistics

AMONG the various growth industries, Philippine SMEs are advised to invest in electronic products, woodcraft and furniture, and other manufactured goods, which are the top commodity exports of the country, so as to revitalize their export performance.

To help them improve and sustain competitiveness in these sectors, enhanced and efficient logistics and distribution services are important to reduce transport time and distribution costs within and outside the region.

Citing that two-thirds of firms in the region are willing to pay more for more efficient logistics services, as e-commerce demands faster delivery of goods, he said that local SMEs need to tap the right partner to thrive in the regional and, eventually, global marketplace.

Across Asia, FedEx is helping SMEs increase their revenue by bringing “better, faster and more flexible” shipping solutions to support unique business needs. It has experts that assist with trade regulations and supply-chain management that are common causes of setbacks for Asean SMEs exporting to other countries.

In the Philippines, FedEx has operations in Manila, Clark and Cebu and has World Service Centers nationwide to cater to the growing and changing needs of its SME customers.

As the AEC realizes its growth potential as a regional economic bloc, Peterson said it is necessary for the Philippine SMEs to study the neighboring markets, examine opportunities, and invest in technology and efficient logistics services that will propel them to global competitiveness.

“We are confident that the Asean Integration and stronger e-commerce will reinforce economic growth and optimism. To reap the benefits, however, SMEs need an efficient supply chain to enhance customer experience. Positive customer service becomes increasingly difficult in a global market that thrives in immediacy,” Peterson said.

Image Credits: Sidharththakur | Dreamstime.com

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