Markets and market development for small-scale enterprises: the experience of the Philippines.

by
Professor Melito S. Salazar, Jr.
Director, Institute for Small-Scale Industries
University of the Philippines

Issues in Markets and Their Development for FB-SSE

The Philippines has a long history of promotional activities for small-scale enterprises. The Annex outlines the history and thrust of these activities. These efforts have enjoyed and continue to have the support of government and are carried out by a network of close to 50 governmental and private agencies. Some key ones among these offer assistance in marketing as an area of focus or as part of broad-based and balanced support programmes. The crucial importance of markets and marketing is reflected in the attention given to these aspects by the agencies.

To understand the issues related to markets and their development one must have a firm grasp of the structure of the forest-based rural small-scale enterprises sector. This sector consists of enterprises involved in wood (communal tree farming, wood processing into furniture, household items and handicrafts); firewood and charcoal making, minor forest products (rattan and resins); and even some minerals from the forest.

Villager works on bamboo lampshades for the tourist trade

Two major factors affect markets and their development: one is the environment which influences the nature and characteristics of the market. For example, in a depressed economic environment one would expect to have a shrinking market due to the decreased purchasing power of the consumer. The other factor is the internal marketing system of the small or medium enterprise which affects its ability to reach out and influence or capture its market. For example, a firm may want to move its market from a low quality orientation to a high quality one. Unless it has the capability to produce the high quality at a low cost which will allow it to offer such goods at a reasonable price to its market, the firm may never be able to meet its objectives.

Market and Marketing Environment

Markets in the developing countries are characterized to a large extent by the very limited purchasing power of the average consumer. A wide range of consumer goods vie for the buyer's money and preference, which is more often oriented to the cheapest. In turn, the enterprises compete to produce at the lowest cost in the market, sacrificing the quality aspect. The result is a market that views domestic products as vastly inferior to foreign-made ones. Faced with this disadvantage and despite import controls imposed by the government, the small and medium firm finds itself always on the defensive. It has to prove that the quality of its products is, at least, comparable to that of the imported competing brands.

In recent years the small firm has to contend with the shift from import controls to import liberalization in many developing countries. This could bring about intense competition resulting in price cutting.

A variety of laws at the national and local levels also constrict the operations of the small business. These laws range from price control to regulatory measures that prescribe mandatory registration and payment of fees. However, the rural FB-SSE is not too affected by this as the regulatory agencies are concentrated mostly in the urban centers.

At the international level, small firms are faced with increasing protectionism in the markets of the developed world. Strict product and quality standards have been prescribed making it doubly difficult for small firms to penetrate the market. The long distances also translate into higher shipping costs making their products less competitive. Finally, the large volume demands and consistent high quality deter the small firms from serving this market.

However rarely can the FB-SSE cater to this market. In a study of the marketing aspects in the Philippine Island of Palawan, it was found that none export their products. Most (67.3%) of the enterprises in the province sell their products within their respective municipalities due to transportation difficulties and excessive cost, 27.3% extend their market beyond their respective locations. These enterprises are mostly based in growth municipalities where transportation and trade links are available. About 10.7% have markets in Metro Manila, the capital.

Focussing on FB-SSEs, it can be seen that their market is quite small and price conscious. At a certain stage of development, the FB-SSEs have a monopoly over this small market but as the country develops, more of the rural areas are opened up to products of national companies with a nationwide distribution system. The FB-SSEs have to find a market niche in such a situation like making specialized products (approaching crafted goods) or by becoming subcontractors to large enterprises. The Palawan experience showed that limited knowledge of the demand and supply behavior of potential industries in the area and the failure to develop products with comparative advantages in markets outside the area pose constraints to the development and expansion of rural-based industries.

Features of the internal marketing systems account for most of the issues in markets and their development pertain to the ability of the small firms to reach out to the market with the right product at the right time with the right price at the right place. The capability of the small enterprise is based on the strength and weaknesses of its internal systems. A recent study (Regional) conducted by the University of the Philippines' Institute for Small-Scale industries (UPISSI) on the marketing factors in small enterprises in the Philippines covered 241 enterprises in four major regions of the country and producing both consumer and industrial goods. The study is a useful reference point in identifying the main issues. More importantly, the insights from the UPISSI-Palawan Integrated Area Development Program (PIADP) Rural Enterprise Development Project as well as results of the evaluation of government support programmes for small and medium scale resource-based industries one region done by the Natural Resources Management Centre (NRMC) will be most useful.

Entrepreneur

The regional study showed that more than half of the entrepreneurs obtained a college education of which most of the courses pursued were in business and engineering. More than half of the entrepreneurs had no educational background in marketing. Two out of three entrepreneurs had worked previously before going into business. In almost all of the cases the entrepreneurs first had wage employment in the same line of business they eventually went into. What these data suggest is that the small entrepreneur gains his marketing knowledge through experience rather than education. This is supported by the data from Palawan which showed that only 29.1% of the enterprises had a college education while a majority (67.7%) had previous work experience. The issue that is raised is whether an entrepreneur is prepared to handle the marketing functions of the enterprise.

We must consider that the small entrepreneur does not have the resources to hire marketing specialists and therefore the marketing strategies and programmes must come from him. The observation has been made that the entrepreneurs need to know how to sell, how to design products, how to compute costs and how to undertake market research. Should the government provide the marketing planning structure for him or should training programmes be established to give the entrepreneur the marketing knowledge and skill?

Marketing Organization

In the Regional study around 56% of the respondents organized a separate marketing department to take full responsibility for some or all of the firm's marketing activities while another 27% had marketing set-ups that undertook only the selling tasks. In the Palawan study, the fact that only 2.5% of the labor force are in marketing/sales indicates the low priority to this area although this is still an improvement over the number during the year the business started.

It is clear that market development cannot proceed without the appropriate marketing organization. In the light of the limited human resources of the small enterprise to undertake needed marketing activities, the issue arises whether the assistance could be provided by government and industry associations to the entrepreneur in setting up his organization or whether this two could establish a marketing organization either an association or cooperative for a number of FB-SSEs.

Table 18: Breakdown of responsibilities in small-scale enterprises (1982)

Function	No. of employees by Type of Worker
	Year Started		1982
	No.	%	No.	%
Supervisory	148	7.6	197	6.8
Administration	214	11.1	276	9.5
Products	1,540	79.4	2,364	81.2
Sales/Markets	57	1.9	73	2.5

Source: UPISSI Palawan Study, 1982

Marketing Arrangements

A majority (78%) of the small and medium enterprises employed direct marketing and 22% were engaged in non-direct marketing arrangements such as sub-contracting, joint venture, purchase agreement and integrated operations. In Palawan, direct selling was fully utilized. Cash on Delivery (C.O.D.) is the most common (90.4%) term of sale, with credit (24.1%) cash advance (11.8%) and installment (7.1%). The high C.O.D. rate reflects the need of FB-SSEs for arrangements that will provide them cash for continued operation. There are instances when middlemen provide the FB-SSEs with their input requirements but arrange to be paid with the production at an agreed price. This usually results in a lower profit margin for the entrepreneur. The issue that arises is whether government either directly or through the banking system can provide financing for working capital which would allow these firms to provide credit and increase sales.

Product Characteristics

The total market for most types of products of small and medium enterprises covered by the Regional study is quite heterogenous. The lack of homogeneity may have been brought about by differences in buying habits of customers, the ways in which the product is used, motives in buying or some other factors. A majority concentrated their marketing efforts toward the domestic market. Significant export activities were found in the food processing, wearing apparel, wood and wood products sectors and electronic products manufacturing. A number of small and medium enterprise firms served the export market in one region.

Cutting coconut wood in the Philippines

Small and medium enterprises also use labels to identify their respective products in the market. Specifically, 86% of the food processing enterprises and 79% of the wearing apparel firms gave due importance to labels be they of the brand, grade or the descriptive/informative type. Firms engaged in marketing arrangements did not regard labeling as a very important aspect of doing business. In some cases, the decision was left to the contractor to attach whatever identification was deemed necessary. In others, a label was a requirement in the marketing arrangement.

For FB-SSEs, most of their products are maintained in traditional designs. While products from the urban centers are not yet able to penetrate the rural areas, this approach allows the FB-SSEs to survive. However, as infrastructure improves, national products invade the rural market. Unless product characteristics are closely attended to, the FB-SSE may not be able to compete. Also as a FB-SSEs expand outside their immediate market, labelling and other product characteristics become important in addition to price. The issue is what government assistance can be provided in this area.

Competitive Strategy

Competition was experienced by 92% of the small and medium enterprises and was felt strongly by one region and Metro-Manila based firms covered in the Regional study. The enterprises encountered varying degrees of competition among themselves. More firms (47%) considered it stiff and only 20% said competition was slight. The food (44%), garments (47%) and wood industries (64%) were among the major sectors perceiving strong competition. Metal fabrication firms (55%) experienced moderate competition while paper and paper products (60%) found competition slight. Competition tended to be confined within a locality (i.e., city, municipality or province). Next to intra-industry competition, two other sources of competition were nationally distributed products and imported goods.

The areas of competition were more on pricing (82%) and product quality (54%). More food processing firms experience competition in terms of product quality. The food processing industry is composed of traditional and technologically advanced firms. Those engaged in home-based processing suffer from low quality and those with better equipment come out with higher quality products. To a lesser extent, competition in the wood and non-metallic industry was based on the ability to deliver on time, production volume, sales network and capital sourcing. Less than 10% of the small and medium enterprises experienced competition in the area of technology, and market research. Some firms were competitive because they have a wide range of contacts in the market. Usually, these companies depend upon strong business or political connection in the community as a means to obtain orders for their enterprises.

In the face of the competition, small and medium enterprises utilized their strengths against their competitors. Their competitive advantage lay in lower price but reasonable product quality. Some industries also made it a point to please their customers before and after a sales deal such that they were able to maintain their clientele: this was done by being flexible in meeting customer's specification and providing good customer relations and after-sales service. It was mentioned earlier that those firms achieving less than 50% of their marketing objective attributed their low performance to competition. These firms either had limited resources or lacked the capability to meet the competition. A more healthy competition could be brought about if there is a relatively even distribution of market information. Approaches could be identified, like using the radio network or holding of market familiarization seminars in the countryside.

Distribution Channels

In the regional study the major market for small and medium enterprises has been the final consumers. Around 83% of them sold directly to domestic consumers. However, 64% of these firms did not deal exclusively with this channel but also sold to local retailers and merchants, institutional users, agents and industrial buyers. Enterprises in Palawan sell directly to household consumers (69.5%), institutional users (15%), retailers (21.1%) and wholesalers (26.4%). In the export market, 31% of export-oriented firms tapped agent/brokers, followed by direct consumers, merchants and to a lesser extent. Industrial buyers and retailers. Most firms sold all their goods through agents or brokers.

The small and medium enterprises claimed they were often very strict in delivering on time because meeting deadlines was deemed a critical factor in maintaining good relationships with their distributers or users. Firms under non-direct marketing arrangements asserted they met delivery schedules while those in the food processing industry often extended their deadline. Further, failure to meet delivery dates has reportedly not had ill consequences for nearly half of the firms. For the others, the penalties included cancellation of orders and reduction in volume ordered. The issue that surfaces here is what appropriate distribution channel to utilise considering the market being served, the product being sold and the level of expertise of the small enterprise. Also whether the government should intervene to assure that FB-SSEs at a certain level of development can penetrate the Metropolitan if not the export market.

The first stage in supplying raw materials to enterprises

Pricing

The pricing strategies commonly used based on the regional study, were cost-oriented, competition-oriented and demand oriented. Under cost-oriented pricing, mark-up pricing was most popular because of simplicity and ease to use. Going rate was adhered to by firms who were keen on meeting competition. This strategy was used extensively in the garments industry. Food firms offered quantity or cash discounts to induce customers to buy in bulk. Demand-oriented pricing such as price discrimination was used by some food firms and commonly found in export-oriented firms. In general, an attractive package and a higher price were fixtures in export goods while locally distributed products would have simple packaging and would be set at a lower price per unit. In developing countries government sometimes issues regulations as price controls which affect the firm's ability to set appropriate prices. However this is more true or more enforceable in the urban than in the rural areas.

Advertising and Promotion

Aside from developing the product, pricing it right and making it easily available to the consumers, small enterprises also promote their products. The main objective of these firms in promoting their products is to inform their buyers about their product and to stimulate a demand for them. Some intended simply to sustain the interest of the buyers in the product while others have the higher goal of substantially increasing their share of the total market.

The promotion mix employed by the small companies varied depending upon the need of the individual firm and its capability to shoulder the corresponding costs. Generally, a combination of two or more approaches was used by the firms in all industry subsectors. Personal selling was the most widely used promotional tool prior to making a sale. Typified by an oral presentation of a product to a prospective buyer, it is the cheapest and the simplest approach. Another means by which a product gets known to a customer is through “word of mouth” testimonial. This however does not constitute a deliberate effort on the part of the entrepreneur to promote his product because it is purely voluntary on the part of the customer.

The other approaches used were samples, store displays, billboards/store signs, telephone canvass and direct mail. Other promotional tools utilised by more progressive firms were advertisement placements in magazines, journals/newspapers, radio and television spots as well as participation in fairs. In Palawan, personal selling was top at 45.9 % followed by word-of-mouth by 45.4%. Considering the limited resources and expertise, small firms in their advertising and promotion come up with material which may not meet market demand. Some form of assistance in drawing up programmes and preparation of even such simple things as brochures may be required for FB-SSE that are breaking into locations outside their immediate vicinity.

Information Network

Entrepreneurs usually gather information on such marketing factors as: product characteristics, total market, distribution, consumers, competitors and government regulations. The information gathered updates them and helps them to adjust their operations to the current market situation. Among the survey respondents, 74.7% were in one way or another involved in getting data, the most common of which being the prices of products, consumers' buying habits and the competitors' areas of strength. It had been mentioned earlier that market research was only a very minor function of the small firm. The orientation of market research was to determine customer needs and the degree to which the firm was satisfying them. Since most firms claimed that they gathered information and they were market-oriented, this could be a casual type of market research.

Direct contact with people provided vital marketing information to entrepreneurs. Thus, the leading source of information was the consumer. Other sources included suppliers, salesmen, competitors, middlemen, news releases and trade publications.

Some entrepreneurs (25%) did not gather information on marketing factors, arguing the absence of a need for it in doing business. This could mean that a) the manufacturer claimed to know everything that is necessary in running a business, b) his firm occupied a quite stable position in the industry, or c) he ran a small company with simple marketing requirements. It could also imply an attitude on the part of the entrepreneur of taking on the challenges as they come. Another reason was the lack of time to attend to gathering information. Other reasons were the unavailability of the required information, lack of access to the source of information, lack of money to undertake the activity and uncertainty as to what data may be helpful to the enterprise. Again, it may be necessary to have government support in identifying market information needs and making this available to the enterprise.

Infrastructure and Support Facilities

While the regional study showed that small and medium firms indicated a minimal requirement for infrastructure and support facilities in marketing their products, this was not the case for Palawan.

For the larger segment of the small enterprise sector, the requirement for such support hardly exists due to their limited geographical coverage, small production volume, fast turnover of products, adequate facilities of the firm itself and simple marketing procedures. Those firms that wanted to expand required these facilities. Among those who mentioned a need, the requirements were mostly for trucking and warehouse/storage facilities and for collection points and handling equipment.

A look at the internal marketing systems of the FB-SSEs raises the issues of the appropriate marketing strategies, pricing, marketing organization, competitive strategies, product market, distribution channels, advertising and promotion, information network and infrastructure and support facilities for the small firm. To a great extent this marketing system cannot operate well without the proper production, financial and administrative systems. More importantly, in a situation where the firm does not have the internal resources to adequately address itself to the demands of the market, to what extent should assistance be given to it? And which sector should provide the help - the government or the private sector through industry associations? It may be helpful to see how in the Philippines such questions have been answered.

Marketing Assistance for Small and Medium Enterprises

In the area of marketing for domestic firms, a number of measures have been implemented that appear to lay down the necessary policy and infrastructure environment. Generally these thrusts seek to: (a) improve the efficiency and cost-effectiveness of local manufactures, and (b) promote their exporting capabilities.

An integrated export development strategy concentrating promotion efforts on seven non-traditional exports namely: electronics, garments, furniture, fresh and processed foods, gifts and housewares, footwear and leathergoods, was conceived and implemented. In support of these development thrusts, institutional projects have also been undertaken to improve the marketing of products. These include among others, the “Market Encounter Program” which brings together regional suppliers, producers and national buyers; “Best in the World Program” where foreign product specialists are brought to the Philippines to help local manufacturers in product development and adaptation; and the “Golden Shell Award” which is given to exporters who have made outstanding achievements in international markets.

Measures towards the simplification of export procedures and documentation have been adopted under the auspices of the Commission on Export Procedures. Likewise, rules and regulations on the monitored or regulated imports as well as procedural requirements on importation have been liberalized. The Philippine Exporters Foundation Inc., a non-stock, non-profit organization was created in October 1984, to mobilize the private sector in the promotion, development and diversification of export products and services, improvement of product quality and provision of skills through training. Its establishment affirms the government's commitment to encourage private sector participation in this national development thrust.

Trade promotion has been developed mainly to bring suppliers and buyers together. Domestic trade facilitation involves the provision of marketing consultancy to retailers, producers, traders and exporters; and the dissemination of information through product/market/geographical profiles. Price stabilization focuses on essential commodities with special attention given to the calamity-stricken areas under the “Calamity Reactuib Programme”. Other programmes in trade promotion include the implementation of Philippine National Standards through a system of Product Standard certification; the protection of consumer interest through periodic checking and surveillance visits to check company compliance with product standards, rules and regulations; the provision of technical consultancy services to domestic and export industries in support of their developmental needs; and intensive information dissemination regarding the fundamentals and significance of metrication and standardization.

The responsibility of marketing support to the small and medium enterprise sector is vested in the Ministry of Trade and Industry (MTI), its cooperating agencies (i.e., Bureau of Small and Medium Industries (BSMI), Bureau of Foreign Trade (BFT), Bureau of Domestic Trade and National Cottage Industries Development Authority (NACIDA), and its attached agencies (i.e., Philippine International Trading Corporation (PITC), Center for International Trade Expositions and Missions, Inc. (CITEM), Design Centre Philippines.

Through the years, these agencies have collaborated and coordinated with one another or carried out marketing projects on their own. Their functions do overlap in a number of instances (i.e., market research dissemination, trade fairs, trade missions, display centers, marketing consultancy, among others), but this seems better than to allow gaps in the delivery of support assistance. A welcome development has been the involvement of the private sector through the Philippines Chamber of Commerce and Industry, the Philippine Exporters Foundation, Inc. and the Accredited Trading Companies, among others, in the development of small and medium enterprises. The sector has been involved in helping industries diversify and develop their products and services as well as in organizing them into trade or industry groups.

Experience of Small and Medium Enterprises on Marketing Assistance

Marketing assistance is extended to the small and medium industry sector largely by government institutions. The impact of such assistance, in general, can be gauged from the entrepreneurs' awareness of these existing programmes and the agencies carrying them out. Compared with the more direct forms of assistance, (e.g., credit financing), marketing assistance is less commonly known to small and medium entrepreneurs. Only about 29.5% of entrepreneurs in the regional survey were aware that such forms of assistance existed.

Apparently, there is little relationship between awareness about these programmes and the enterprises' proximity to Metro Manila where the concerned government agencies actively pursue their assistance activities with some remote entrepreneurs outranking those closer to the National Capital Region (NCR) in awareness of marketing programmes.

Awareness of marketing assistance schemes also involves knowledge of the agencies promoting them in the different localities. In one region, NACIDA was more prominent for extending marketing support. Entrepreneurs in another region were more familiar with the activities of the Centre for International Trade Expositions and Missions Inc. (CITEM), Small Business Assistance Center (SBAC) and the Bureau of Foreign Trade (BFT). CITEM was known for its trade fairs and market encounters involving participants from the regions. Similarly, in the Metro Manila area, CITEM ranked high in familiarity among entrepreneurs though second to NACIDA while in yet another region, it was SBAC which was widely known.

Only a small number of entrepreneurs in the regions knew of private organizations extending marketing support. These private groups are mostly industry associations based in Metro Manila. By industry, awareness of marketing assistance was highest in the wearing apparel, wood and food processing industries in descending order of cognizance. Awareness of marketing assistance could also be a function of the attitudes of the entrepreneurs aside from the promotional efforts of the implementing agencies. As will be discussed later, quite a number of entrepreneurs were indifferent to marketing assistance and saw no pressing need to be helped.

Less than half (43.7%) of small and medium entrepreneurs who were aware of marketing assistance sought the services. Generally, the nature of assistance requested ranged from information about buyers, suppliers, sources of raw materials, and product designs, to direct participation in trade fairs and seminars.

Most were interested in participating in trade fairs. A few entrepreneurs claimed to have actually been invited to join the fairs. Near the capital, where the percentage of awareness was fairly low at 40%, the type of assistance asked for was mostly in promotion as in advertisement placements and displays, followed by assistance in exporting. In some cases, entrepreneurs might be more aware of available assistance but few of them sought it. Basically, they wanted to be assisted in sourcing of raw materials, product design and market research. In one region, although manufacturers of wood and wood products scored low on awareness of assistance programmes, they had a higher proportion of those who applied for it especially with regard to participation in trade fairs and product design.

However, the highest number of establishments which availed of the assistance came from urbanised regions (up to 86 %). Considerable interest in availment was shown when it came to participating in trade fairs and seminars. Promotion and information assistance received little attention and application for them was low. In the food processing industry, some 87.5% of the applications were granted compared to 80% in the wearing apparel and 66.7% in the wood industries.

Table 19: Changes in Marketing Problems Before and After Assistance

	Change in Number of Respondents
	CTF1	BFARAE2	NACIDA3	SBAC/MASICAP4
Lack of Market Information	Increased	-	No change	-
Lack of storage	-	No change	Decreased	-
Transportation problems	No change	Increased	Decreased	-
Presence of big competitors	-	Increased	Increased	Decreased
Low prices	-	No change	Decreased	-
Others	-	Increased	Decreased	Decreased
No ready market	No change	Increased	Decreased	Decreased
No problems	-	Increased	Increased	Increased

Notes:

1. Communal Tree Farming

2. Bureau of Fisheries and Aquatic Resources Extension Service for Agriculture

3. National Cottage Industry Development Authority

4. Small Business Advisory Center/Medium and Small Industries Coordinated Action Program

Generally, there were a few (16.1%) entrepreneurs who encountered difficulties in applying for marketing assistance. Some of the problems cited were the length of time between application and response to it and certain paper requirements. On the whole, however, entrepreneurs regarded the assistance received as effective especially when increases in sales, orders or customers were subsequently experienced. Other positive results noted were increased awareness of marketing procedures and contact with a cheaper source of raw materials, in cases where mere inquiries from potential buyers and not actual orders were received, entrepreneurs tended to harbor negative feelings toward the assistance. Sometimes, the assistance took too long to produce results or produced nothing at all.

A recent study indicated that the impact of various assistance programmes on the marketing of their products has not been impressive as shown in Table 19. Based on the regional study of those who were not aware or who have not applied for marketing assistance, more than half (55%) planned to avail of it. The major form of assistance needed was related to an expanded market (e.g. more buyers and new contacts locally and abroad), followed by those which relate to product improvements as in new or better designs, enhanced quality and new uses for the products. There was regional variation in the priority given to various types of assistance.

The top priorities identified in the regions ranged from market assistance in the identification of new markets/potential buyers and export opportunities to assistance related to price setting. In the capital city area, a majority (60.6%) of the entrepreneurs, who were not aware or have not applied for marketing assistance expressed plans of doing so. The need for tapping the export market and more buyers ranked higher here than in the other regions. Following them was the demand for promotion assistance through exhibits, trade fairs, and product displays, among others. Developing more product lines as well as better designs was also expressed.

In other regions, interest was in market and product development; improving quality of the products; assistance with machine parts design and new product uses; and assistance in distribution along with product improvement. By industry, the majority (67.2%) of the entrepreneurs in the wearing apparel subsector who were not aware and have not applied for assistance planned to seek help particularly in identifying new markets and increasing promotional efforts. In the wood industry a relatively big percentage of small and medium entrepreneurs (63%) wanted to avail of marketing assistance: they wanted assistance concerning more buyers, better designs, improved product lines and promotion abroad.

In all regions, government institutions were virtually the top choice of entrepreneurs as their source of marketing assistance. The reason behind this could be the general perception that government programmes and their attendant machinery were already in place. Small and medium entrepreneurs needed only to approach the right agencies and know the relevant procedures. Private institutions were the second choice. They received a higher patronage in Metro Manila where industry associations are concentrated. They presented an alternative source of assistance to the small business entrepreneurs.

About 38.6% of those who were not aware or had not applied for any marketing assistance expressed no desire to be assisted. The common reasons given were satisfaction with their present marketing set-up, and capability of the respondent to handle the marketing aspect of the business by himself. Others found no need for the assistance since they considered their company to be too small for it. Further, a number of entrepreneurs looked at assistance with skepticism and doubted whether it could help their businesses at all. Some entrepreneurs hesitated to approach the assisting agencies because they were convinced it would be difficult to reach these institutions or they simply did not have time to pursue the task. The uncertain economic situation discouraged a few from seeking assistance while the rest needed financing more than marketing assistance.

Discussions with government officials showed that there was still no distinction being made among the different variants of SSEs. The marketing assistance programmes therefore target a general group and may not really answer the needs of the various subsectors. It is also clear that while the government is still the most sought institution to provide marketing assistance, there is need to undertake a massive information and promotion campaign to make entrepreneurs aware of the availability of these services. However, the infrastructure to provide such assistance should also be in place, otherwise frustration could set in.

Transporting wood to market by canoe

Recommendations

The previous discussions lay the ground work for recommendations on forest-based rural small scale enterprises (FB-SSE) markets and their development. A general role for government is obviously maintainance of a supportive economic environment as well as law and order in rural areas. Specific recommendations related to markets and marketing are as follows:

1. Markets: There seems to be a need for some government or private organizations to link rural FB-SSEs with better and larger markets initially in terms of supplying market information, giving publicity to FB-SSE products, and later in the actual movement of commodities. This should be accompanied by consolidation of production either through cooperative associations of small firms or by having the small firms perform as subcontractors of larger organizations whether private or governmental. It may also be necessary to create a central unit for each subsector or activity type which could source market information and orders, then parcel these out to the FB-SSEs.

2. Support Infrastructure: The FB-SSEs should be given almost a cocoon of support infrastructure in terms of training, information, technical consultancy, marketing and financial assistance as well as hard infrastructure in terms of roads, bridges and ports (in island countries).

3. Law and policy: Laws and regulations at the national and local levels should be facilitative of the development of these enterprises rather than be restrictive. Even taxes and other fees should be kept at a minimum to encourage the setting up and formal registration of such firms.

4. Firms Development. Most of the FB-SSEs which function as gatherers of raw materials for other small or large enterprises should be helped towards becoming initial processors of these raw materials and eventually into the ultimate producers. This will require the continuous training of the entrepreneur in managerial skills and the provision of financing and other functional assistance.

5. Product Design. FB-SSE entrepreneurs must be guided in product design either by making available copies of such specifications through mobile design facilities or by fielding design specialists in the countryside. This should be coupled with a training programme.

6. Entrepreneurship Development: There is a need to set up an appropriate training programme in all enterprise facets, including marketing.

7. Expanded Government Assistance: In general, government efforts to extend marketing assistance should be maintained and expanded to reach particularly the FB-SSEs in the regions. In this respect a network of government assistance units at the lowest political level may be more relevant than one at a regional or national level.

Annex: Background on development and general features of small-enterprise assistance programmes in the Philippines.

The promotion of small and medium enterprises as a vital component of economic development has been well recognized. The interest in small and medium enterprises stems from the realization of their potential to absorb excess labor and their low capital requirements, two factors which are highly favored by newly developing countries where capital is scarce and underemployment and unemployment are high. Many countries attempting to achieve a wider participation in economic development, both by income class and by regions, are increasingly looking towards the rapid growth of small and medium enterprises as a means to increase the upward mobility of the poor. In as much as the poverty is usually more pronounced in the countryside and paradoxically, the bulk of the natural resources are in the rural areas, the need to promote rural based small and medium enterprises utilising the indigenous raw materials has been recognized by most developing countries. The Philippines is no exception.

The present government has enunciated the policy of improving the economic conditions of the rural population through a vigorous campaign to increase the number of rural-based small and medium enterprises. In the context of the rural areas, one would be encountering more of micro and cottage enterprises than of small and medium enterprises. But in the use of the term small and medium enterprises, the government has a tendency to subsume the micro and cottage sectors. This government initiative is proceeding from the conglomeration of government assistance programmes and wide network of support agencies.

Promotion of Small and Medium Enterprises

The past and present development plans have expressed the general policy of encouraging economic activities which permit the greater use of manpower to minimize unemployment. The Philippine development plans for the period 1974-1977, 1983-1987 and the recent economic recovery programme clearly reflect the bias favouring small enterprises. Among the objectives of the plans are:

1. to increase foreign exchange earnings and savings through export promotion particularly of non-traditional manufactures and agro-based products;

2. to accelerate employment generation through the development and promotion of labor intensive agro-based and resource-based small and medium industries; and

3. to equitably distribute the benefits of industrialization through the dispersal of industries.

To attain these objectives, specific industrial policies and strategies have been laid down which among other things, include (a) increased financing to regionally dispersed cottage, small and medium industries; (b) provision of support to start-up operations as well as technical and marketing assistance; (c) greater participation of the private sector in the development thrust and establishment of more private industry associations throughout the country to serve as links between the small entrepreneurs and the rest of the business world; (d) development of indigenous raw materials to ensure adequacy of their supply; (e) rationalization and restructuring of key industry sectors; and (f) focussed and organized export promotion for the priority export products.

To implement these policies and strategies, the government set up a network of coordinating councils and agencies as far back as 1970 when the National Council for Small and Medium Industries was created through a presidential executive order. The number of organizations involved in small and medium industry promotion and their functions is now close to fifty.

The National Council was intended to integrate all government programmes affecting small and medium industries and to establish policy guidelines to ensure the stability and continuing growth of the sector but could not lay claim to any significant accomplishment. In August of 1973, a national campaign was launched to encourage, assist and accelerate the establishment of small and medium industries in the rural areas. Spearheaded by then Board of Investment Chairman Vicente Paterno, the plan featured four general types of government assistance to be extended to small and medium industries: financial, technical, marketing and purchasing, and promotions.

In June of 1974, the Commission on Small and Medium Industries was organized to carry out an integrated and comprehensive national programme to assist small industries. In a sense, the Commission may be considered an off-shoot of the Paterno Plan since many of the government agencies involved in the preparation of the plan became member-agencies of the Commission. Further, the operating principle behind the Paterno Plan and the Commission work programme followed the same concept - that of a coordinated, multi-agency approach to the development and financing of small and medium industries. During its years of operation, the Commission made considerable progress in carrying out its various small industry programmes particularly in the rural areas. From the quantitative point of view - i.e. number of projects assisted, loans granted, persons trained, etc. - it certainly gave the sector the strongest support provided by a government body.

The Commission was later abolished and the lead agency in the development of the sector became the Ministry of Trade Industry through its Bureau of Small and Medium Industries, National Cottage Industry Development Authority and later on its Small and Medium Enterprises Development project office. But the thirty or so other organizations involved in the sector development, like the University of the Philippines Institute for Small-Scale Industries (UPISSI), the Development Bank of the Philippines, the Technology Resource Center, continued to undertake their activities without the benefit of a formal coordinating body like the previous Commission.

These agencies undertook entrepreneurship development, managerial and skills training, information and promotion, technical assistance, extension and consultancy, research and financing. The UPISSI together with the Development Bank of the Philippines and the National Manpower and Youth Council conducted entrepreneurship development programmes all over the country. Later and up to the present, entrepreneurial concepts were integrated into the secondary school system and the business schools in order to redirect the formal educational system to self-employment in addition to an employment orientation.

Various agencies also conducted managerial and supervisory development programmes, specialised functional area (finance, marketing, production) training programmes and specific courses for small business consultants, extension workers, information specialists, researchers and bank officers. Information and promotions activities consisted of publicising the various support programmes available and the procedures of availment as well as the granting of awards to outstanding entrepreneurs. The television and print media also carried news and features on the successful small businessmen to encourage the population to be favourably disposed to entrepreneur ship.

Working efficiently in a well designed plant

Other government agencies set up a nationwide network of offices to provide technical, extension and consultancy services. Assistance was given in the design of products, improvement of plant layout and production management, identification and acquisition of appropriate technology, preparation of project feasibility studies, marketing programmes, organizational studies and identification of market opportunities.

These offices also assisted the entrepreneur in availing of government incentives and specialised lending schemes. Among these lending schemes were the Industry Guarantee Loan Fund, which extended low-interest loans through accredited financial institutions and gave guarantees for up to 80 percent of the loan; the Small and Medium Industries Lending Programme of the Development Bank of the Philippines also giving low interest rates but through its own national network of branches; the Guarantee Fund for Small and Medium Enterprises with a bias towards agribusiness ventures; the various lending schemes of the Technology Resource Center for the micro-industries and technology-related projects and a gamut of loans from small but numerous private voluntary organization.

An innovative lending approach was the venture capital corporations which would have provided equity financing. Unfortunately, its ownership structure of 60 percent being controlled by private banks resulted in its operations approaching those of banks with their collateral orientation and risk adverseness. Thus the bulk of its activities was in transactional rather than equity financing.

The government planning agency, a few academic institutions and the UPISSI conducted policy researches for government officials, industry associations and international organizations towards the improvement of the total support system for the sector. A number of these studies emphasized the interrelatedness of the functional areas of production, finance, administration and marketing. They also highlighted the importance of marketing due to situations where adequate financing, administrative procedures and production capability translated into high production inventory rather than sales. Increasingly, it became obvious that the issues concerning marketing had to be resolved if the small and medium industry sector was to grow and be an important contributor to national recovery.

In need of a loan fund to modernise the work methods

Summary of Marketing Assistance Programmes The following are the main lines of assistance given to small-enterprise marketing, all of which have been referred to in the paper: 1. Marketing Assistance Programme (MAP) - Market information: information collected and distributed on local and domestic markets and new opportunities. BSMI (Board of Small and Medium Industries), BFT (Bureau of Foreign Trade) and NACIDA are particularly active. - Marketing consultancy: on all aspects of markets and marketing. - Trade opportunities: BFT works through trade attaches to develop export potential and disseminates information. - Trade fairs/exhibits: sponsors and organises participation in international trade fairs. - Trade missions: support to overseas private and official trade missions. - Trade agreements: both commodity agreements and arrangements for agency role by foreign marketing companies for Philippine goods. - Display centres/emporia: uses selected emporia and display centres nationwide to show SSE products. - Trade complaints mediation: Ministry of Trade and Industry through the BFT assists in settling disputes. 2. Market Encounter Programme The programme is essentially a monthly sales fair for SSE and medium-scale industry products from high-potential producers. Brings together producers and potential customers. 3. Best in the World Programme Brings to the country the best international experts in their fields to help improve design, product adaptation, technique etc. of SSEs. 4. Design mobile Mobile design team displays products and helps clients with their own designs. 5. Export Assistance Network (EXPONET) EXPONET helps exporters with export documentation, raw materials, export enquiry services, contacts with assistance and official agencies, market information etc. 6. Other: Several other programmes exist to assist small producers.