Policy reforms needed to make SMEs competitive

THE government should put in place policies that should support competitiveness of small and medium enterprises (SMEs) in the country.

This was one of the major issues discussed during yesterday’s 2013 Enterprise Performance in Asia Conference held at the Radisson Blu Hotel.

In developing countries, there is a prevalence of inappropriate and irrelevant policies that prevent small firms from growing which should be addressed by government, said Steven J. DeKrey, Asian Institute of Management president, during his opening speech at the conference.

“There are three main things that countries should have to grow their economy from middle income to a higher income level. First is a stronger price resiliency, SMEs competitiveness should be increased, and enhanced business environment,” DeKrey said.

He said that SMEs competitiveness can be supported through policies that are more enabling rather than restrictive.

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Juzhong Zhuang, chief economist of the Asian Development Bank, agreed with DeKrey.

Growing SMEs is the most effective means to alleviate poverty levels in developing countries as they make up for 90 percent of the enterprises in Asia, 50 to 99 percent of employment and 70 to 72 percent of Gross Domestic Product (GDP), said Zhuang.

He, however, said that most SMEs encounter a lot of barriers to growth which includes access to finance, skills, technology and market.

“I think this is common to all countries in Asia. They face a lot of challenges including productivity so policy support is really needed. While government address constraints faced by major enterprises, they should also ensure SME participation,” he said.

COMMON SME FAILURES

The most common failures of SMEs are caused by poor financial management activities (34 percent), this is followed by lack of management competence (16 percent), inflation and economic conditions as well as poor bookkeeping and records (both 12 percent), sales and marketing (11 percent), staffing problems (9 percent) and union problems (6 percent), said Jay Mitra, professor at Essex Business School.

Poor financial management activities can also mean limited access to finances which is one of the major hurdles to growth faced by SMEs, said Mario B. Lamberte of the Complete Project, which offers capacity trainings to SMEs to help them access funds.

In the Philippines, there is at least P180 billion in SME financing gap based on figures they got from the Department of Trade and Industry, Lamberte said.

“This gap (P180 billion) is only three percent of total deposits that our banks have now which is at P6.35 trillion,” Lamberte said.