Status and conditions of small- and medium-sized enterprises as predictors in empowering rural communities in Samar Island, Philippines

1.1 Objectives of the study

This study sought to determine the status and conditions of SMEs as predictors in empowering the rural communities of Samar Island, Philippines. Specifically, it aimed to describe the organizational variables of SMEs and assess their conditions in terms of membership/ownership structure; leadership; policies, systems and procedures; resource mobilization; linkages and networking; communication systems; and awards and recognition; determine the level of empowerment of rural communities with SMEs in terms of material, perceptual and relational changes; and find out the degree of relatedness of organizational variables to the level of empowerment of rural communities with SMEs.

2.1 Definition of small and medium enterprises

Hobbs and Del Rosario (2000) claims that there is no consensus on the definition of SMEs throughout the Asia–Pacific region owing to the differences in the general economic development within each country and their prevailing social conditions. Various indices are used by member economies, including number of employees, invested capital, total amount of assets, sales volume and production capability. Other classifications exist too, contributing to confusions in definitions. For example, in China, a distinction is made between SMEs and Township and Village Enterprises (TVEs). In Chinese Taipei, definitions vary with respect to those that expect to receive government assistance. Singapore classifies according to local and overseas SMEs. There are many definitions and classification of SMEs throughout Asia but the most commonly used is the number of employees: 10-500 is the average number.

In his study about the institutionalization of agro-based SMEs in Batangas Province, Philippines, Mendoza (2001) has presented the following published definitions of SMEs of the nine countries; eight use employment size as the basis of classification, and among the eight countries, five have alternative bases such as asset and capital size, in addition to employment size (Table I).

The People’s Republic of China (PRC) has a new standard for classifying large-, medium- and small-sized enterprises. The basic criteria for scaling enterprises of various industrial sectors are annual sales and fixed assets. Both the annual sales and the fixed assets of a large-sized enterprise should exceed Yuan 5bn, while those of a medium-sized enterprise should exceed Yuan 5m; otherwise, an enterprise will be categorized as a small-sized enterprise.

Moreover, Mendoza (2001) emphasized that in the Philippines, the definition of SMEs has evolved over the years but always on the basis of either asset size or the number of employees. The current definition is provided in Republic Act No. 8289, enacted on July 22, 1996 to strengthen the promotion and development of, and assistance to small and medium enterprises. As defined in the act, a small and medium enterprise is any business activity or enterprise engaged in the industry, agribusiness and/or services, whether single proprietorship, cooperative, partnership or corporation whose asset size corresponds to the set amounts as follows:

• Micro P1,500,000 and below.

• Smallfrom P 1,500,001 to P 15m.

• Mediumfrom P 15,000,001 to P 60m.

Republic Act No 6977, enacted on July 23, 1990, otherwise known as the Magna Carta for Small Enterprises used the following categories in classifying business enterprises:

• Microless than P 50,000.

• Cottagefrom P 50,001 to P 500,000.

• Smallfrom P 500,001 to P 5m.

2.2 Small and medium enterprises in the Philippines

The government’s commitment to promote small enterprises as a policy for growth is formally made explicit in the recently approved Magna carta for Small Enterprises, which seeks the following:

To promote, develop, and assist small and medium-scale enterprises through the creation of a small and medium enterprise development (SMED) council, and the rationalization of government assistance programs and agencies concerned with the development of small and medium enterprises, and for other purposes (Lapar, 1991).

On the basis of the latest available statistical data provided by the Philippine Statistics Authority (PSA) (2015), there are 900,914 establishments in the Philippines. Of these, 99.5 per cent (896,839) are micro, small and medium enterprises (MSMEs), and the remaining 0.5 per cent (4,075) is large enterprises. Majority of the 896,839 MSMEs in 2015 were in the wholesale and retail trade; the business establishments engaged in the repair of motor vehicles and motorcycle industries, accommodation and food service activities, manufacturing, other service activities, information and communication, and financial and insurance activities were 417,094; 119,037;113,949; 56,904; 35,171; and 34,384, respectively. These industries accounted for about 87.0 per cent of the total number of MSME establishments. Majority of the MSMEs in operation in 2015 can be found in the National Capital Region (NCR), with 190,166 business establishments; Region 4-A (CALABARZON), 131,011; Region 3 (Central Luzon) with 100,880; Region 7 (Central Visayas) with 53,218; and Region 1 (Ilocos), 47,996. These top five (5) locations accounted for about 58.4 per cent of the total number of MSME establishments in the country. MSMEs generated a total of 4,784,870 jobs in 2015 as compared to 2,981,819 for large enterprises. This indicates that MSMEs contributed almost 61.6 per cent of the total jobs generated by all types of business establishments that year. Of these, 29.4 per cent or 2,285,634 jobs were generated by micro enterprises; 25.3 per cent or 1,968,452 by small enterprises; and 6.8 per cent or 530,784 by medium enterprises. MSMEs accounted for 25 per cent of the country’s total exports revenue. It is also estimated that 60 per cent of all exporters in the country belong to the MSME category. MSMEs were able to contribute in exports through subcontracting arrangement with large firms, or as suppliers to exporting companies.

2.3 Concepts of empowerment

The term empowerment has different meanings in different social and political contexts and does not translate easily into all languages. An exploration of the local terms for empowerment around the world always leads to lively discussions. Local terms associated with empowerment include self-strength, control, self-power, self-reliance, own choice, life of dignity in accordance with one’s values, capability to fight for one’s rights, independence, own decision-making, being free, awakening and capability.

Among many Filipino organizers, empowerment is tuklas-lakas, which literally means discovering power. In the process of discovering, the poor regain their humanity and critically re-discover that they are of value not for what they have or don’t have but for what they are. Their dignity is enhanced through the practice of their capacity to share their own future. According to Espinar and Company (2001), empowerment signifies the awakening and utilization of the innate power and potential that belong naturally to persons and collectivities. Empowerment, according to her, is equated with community organizing (CO). CO is organizing people for power, and it is a continuing process of empowering the people so that benefits consistent with their priorities and aspirations will sustainably accrue to them.

Empowerment is of intrinsic value. It also has instrumental value. It is relevant both at the individual and collective level. It can be used to characterize relations within households or between poor people and other actors at the global level. The World Bank (2002) operationally defines empowerment as the expansion of assets and capabilities of poor people to participate in, negotiate with, influence, control and hold accountable institutions that affect their lives. In its broadest sense, it is the expansion of freedom of choice and action. It means increasing one’s authority and control over the resources and decisions that affect one’s life. As people exercise real choice, they have increased control over their lives.

Fernandez (1994) defines empowerment as a process that entails the transfer of power to the people for decision-making and policy formulation, premised on a commitment to a more egalitarian society. People empowerment, according to him, focuses on the development of the marginalized individuals in the community to participate in all spheres of decision-making, i.e. social, political and economic. This entails the establishment and consolidation of self-reliant people’s organizations, which could sustain the development process and increase the power of the majority to respond to the problems, issues and needs by themselves.

2.4 Elements of empowerment

There are thousands of examples of empowerment strategies that have been initiated by poor people themselves and by governments, civil society and the private sector. Although there is no single institutional model for empowerment, experience shows that certain elements are almost always present when empowerment efforts are successful. The four elements of empowerment that must underlie institutional reform are: access to information, inclusion and participation, accountability and local organizational capacity. These four elements are closely intertwined and act in synergy. Thus, although access to timely information about programs, or about government performance or corruption, is a necessary precondition for action because there are no institutional mechanisms that demand accountable performance or because the costs of individual action may be too high. Similarly, experience shows that poor people do not participate in activities when they know their participation will make no difference to products being offered or decisions made because there are no mechanisms for holding providers accountable, even when there are strong local organizations, they may still be disconnected from local governments and the private sector, owing to lack of access to information (The World Bank, 2002).

Ramos (1991) emphasized that empowerment does not mean political empowerment alone. It also means economic empowerment, social empowerment, cultural empowerment, all of which contribute to national empowerment. If local communities are to have any power over their own lives according to him, then they must be allowed to consolidate, use and develop their own resources.

Ford (1987), as cited by Poblete (1995), identified various aspects of empowerment such as physical, intellectual, economic, political and cultural. It requires a shift in the possession of authority or influence as well as the control of goods and services from the traditional centers of power to other newly created centers. In this manner, power is no longer a monopoly of certain individuals or groups in a given society. Hence, empowerment is a process of increasing the capabilities of people for decision-making and problem-solving.

2.5 Community empowerment

Empowering rural communities is necessary to create a brighter future. It involves five things:

1. knowledge of existing conditions;

2. a vision for the future;

3. a constituency of people;

4. a commitment to act; and

5. a plan for taking action.

First, residents need to understand current community trends and the long-term implications of these trends. Second, thy need to develop a vision for the future – the biblical adage “without a vision the people perish” is true. Third, there needs to be a constituency of people; it need not be a majority, but it must be a group large enough to build momentum and energize others. Fourth, there must a commitment to act; talking is important but action is even more critical. Finally, there must be some plan, which guides the action or lends direction to the people involved. All five of these components are important but it is critical that a vision and a plan get translated into action: empowerment in essence, means enabling people to act (Goreham, 2002).

The World Bank, 2002 emphasized that since time immemorial, groups and communities have organized to take care of themselves. They work together, organize themselves and mobilize resources to solve problems of common interest. Often outside the reach of formal systems, poor people turn to each other for support and strength to solve their everyday problems. Poor people’s organizations are often informal, as in the case of a group of women who lend each other money or rice. They may also formal, with or without registration, as in the case of farmers’ groups or neighborhood clubs. Around the world, including in war torn societies, the capacity of communities to make rational decisions, manage funds and solve problems is greater than generally assumed. Organized communities are more likely to have their voices heard and their demands met than communities with little organization. Poor people’s membership-based organizations may be highly effective in meeting survival needs, but they are constrained by limited resources and technical knowledge. In addition, they often lack bridging and linking social capital; that is, they may not be connected to other groups unlike themselves or to the resources of civil society or the state. It is only when groups connect with each other across communities and form networks or associations –eventually becoming large federations with a regional or national presence – that they begin to influence government decision-making and gain collective bargaining power with suppliers of raw materials, buyers and financiers.

2.6 Empowerment indicators

Domingo (2000) cited Foa and Foa (1974) who identified resources as one of the factors that influence empowerment. They found out that the resource chosen for reciprocation is influenced not only by the resources previously received but also by institutional setting in which the exchange take place. On the whole, the study indicated that when no constraints are imposed on the availability of resources, certain exchanges are more likely to occur than others.

Empowerment is dependent on four interdependent variables (CDRA, 1987) such as follows:

1. the sense of community which refers to the attachment between people and their social milieu through shared history, value systems and reinforcement of common experiences;

2. the competence in collective identification of problems and needs and consensus on the ways and means to implement agreed goals;

3. human and material resources that are called upon or mobilized in the face of adversity; and

4. the level of community/social participation in decision-making process.

Enterprises can be a source of power. Tan (1995) emphasized the importance of developing spirit and a sense of personal achievement, which can be attributed to three essential and interrelated factors: environment, economic relationships and experience.

An environment conducive to developing entrepreneurs is characterized by the following:

• freedom to pursue and transfer ideas; presence of an open market where individual can express their ideas in an infinite variety of products;

• minimum restrictions from authorities that allow the pursuit of interest, with available support from the community; and

• access to materials and technologies for product development.

Economic relationships have something to do with networking, which the entrepreneurs must learn much. They must also learn to develop skills in listening, respect for others and appreciation for the help given. Most importantly, they need to learn not to betray other’s trust. More than a competitive spirit, entrepreneurship imbibes a sense of cooperation. Entrepreneurial experience, on the other hand, is an acquired learning by applying a specific knowledge to practice. One may never become an entrepreneur without hands-on experience. Substantive learning is increased, and self-esteem enhanced, when new insights and discoveries are gained by self-learning. This experience can be acquired in any work area and becomes entrepreneurial when ideas are transformed in an innovative way (Tan, 1995).

Any empowerment process involves a complex combination of different dimensions and levels. Empowerment frameworks have typically combined indicators of empowerment, equality and equity. In the review of materials on empowerment indicators, the researchers adopted the indicators espoused by Chen (2002). Chen had developed three major empowerment indicators, which he had applied in his study to measure the impact of micro-financing activities, such as:

• Material change: Income – (which is measured in terms of) increase in income and income security; resources – increase access to, control over and ownership of assets and income; basic needs – increase or improvement in health care, child care, nutrition, education, housing, water supply, sanitation and energy source; earning capacity – increase employment opportunities plus the ability to take advantage of these opportunities.

• Perceptual change: Self-esteem – enhance perception of own individuality, interest and value; self-confidence – enhance perception of own ability and capacities; vision of future – increase ability to think ahead and plan for the future; visibility and respect – increase recognition and respect for individual’s value and contribution.

• Relational change: Decision-making – increase role in decision-making within household and community; bargaining power – increase bargaining power; participation – increases participation in nonfamily groups, in local institutions, in local government and political process; self-reliance – reduce dependence on intermediation by others for access to resources, markets, public institutions plus increase in the ability to act independently; organizational strength – increase strength of local organizations and local leadership.

3.1 Stage 1 – primary sampling units

3.2 Stage 2 – secondary sampling units

3.3 Stage 3 – tertiary sampling units

4.1 The status and conditions of small and medium enterprises in the rural communities

7.1 Organization and establishment of Samar-wide trade association or chamber of commerce

Collaborative efforts among the three provincial offices of the Department of Trade and Industry in Samar Island should be directed toward the organization and establishment of a Samar-Wide Trade Association or Chamber of Commerce. The said association will ensure that the rights, benefits or privileges of the SMEs/BMBEs particularly in Samar Island are vigorously pursued and the interests of the owners/entrepreneurs are being protected.

7.2 Establishment of an inter-agency regional small and medium enterprises development center

To strengthen the capabilities and capacities of the SMEs and BMBEs in region 8, along the areas of enterprise development and implementation management, it is recommended that a Regional SME Development Center be established. The University of Eastern Philippines and the Department of Trade and Industry of Region 8 will spearhead this, in collaboration with other agencies of both government and the private sector, including federation or union of trade associations and/or chambers of commerce.

7.3 Research recommendations

On the basis of the findings of the study, it is recommended that similar studies be conducted in other regions of the country to derive findings that may either support or refute the conclusions arrived at. These studies would cover more enterprises in the service sectors such as, but not limited to, the emerging information and communication, finance and insurance services.