OTOP-Philippines:

Enhancing the competitiveness of rural enterprises

Felix A. Tonog Philippine Business for Social Progress

Manila, Philippines

Email: fatonog@pbsp.org.ph

Revised December 2011

Abstract

Micro, small and medium enterprises (MSMEs) dominate the Philippine business sector

particularly in the rural areas. The Philippine government adapted the One Town, One

Product (OTOP) program as a job generation and poverty reduction strategy by promoting

the creation and growth MSMEs. The study reveals that after six years of implementing the

program, it has generated positive results in terms of investments, sales, enterprises assisted

and jobs generated. Despite certain limitations and misgivings in its implementation, the

study concludes that the program was successful in upgrading rural enterprises and linking

them with the mainstream market. Conversely, the entrepreneurs deem the OTOP-

Philippines very useful and they are satisfied with the kind of support that their businesses are

receiving through the program. Some observations and recommendations for reforms were

put forward to make the program more relevant and effective.

Keywords OTOP; OVOP; micro, small and medium enterprise development; rural enterprise

Acknowledgement

This study was undertaken through collaboration between the Ritsumeikan Asia Pacific

University, Japan and Philippine Business for Social Progress, Philippines. We are grateful

to Prof. Kunio Igusa and Prof. Takeshi Fujimoto for their support and guidance throughout

this study. This study would not have been possible if not for the dedication and hard work of

the research team composed of Katrina dela Rosa, Lizlei Puno-Manabat, Arianne Jane Sulla

and Rowena Rivera.

The views expressed herein are those of the author and not necessarily of APU nor of PBSP.

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OTOP-Philippines:

Enhancing the competitiveness of rural enterprises

1 Introduction

The One Town-One Product (OTOP) program was adopted in the Philippines in 2004

as a flagship program of the government to promote the creation and growth of micro, small

and medium enterprises (MSMEs), especially in the rural areas. MSMEs dominated the

business sector in terms of numbers, and were seen as a potent force to generate jobs, propel

local economy, and combat poverty.

Patterned after the One Village, One Product (OVOP) movement at Oita Prefecture in

Japan, OTOP-Philippines aims to generate jobs by improving the competitiveness of local

industries by focusing on the product or service in which the particular town or municipality

has the resources, capability and the skills needed to produce the product or deliver the

service efficiently. The program ―is meant to catalyze development in the regional and rural

areas. It has effectively enhanced the entrepreneurial consciousness of the people in the

countryside and has paved the way towards the more productive utilization of the indigenous

resources as raw materials‖ (Cruz 2010). Many countries, particularly in Asia, have already

adopted OTOP as a SME promotion strategy.

The OVOP movement, as popularized by former Oita Governor Morihiko Hiramatsu,

Ph.D., is founded on three principles: ―Think globally, Act locally‖; ―Self-reliance and

Creativity‖; and ―Human Resource Development‖. Applying these principles in promoting

the growth of Oita’s local economy, Dr. Hiramatsu devised ―a regional development strategy

preferentially driven by economic interest, and decided to adopt a policy to realize a society

where the citizens’ lives and the community’s benefits come first‖. Such strategy is based on

endogenous development theory where ―people can develop their areas by promoting the

semi-secondary industries (or agro-processing), while making full use of their potential

resources and capital and also preserving the environment‖ (Oita OVOP International

Exchange Promotion Committee 2006).

Beyond the increase in the per capita income of people, Dr. Hiramatsu envisions,

through the OVOP movement, ―a society where all citizens can be proud and feel satisfied

with their lifestyles in each of their respective communities; where the elderly live with peace

3

of mind, the young can fully express their vitality, and people can produce their own

specialties including culture and tourism even in rural places‖.

This study was undertaken to assess the effectiveness of OTOP-Philippines as a

program and its relevance to MSME promotion and development initiatives as perceived by

the entrepreneurs participating in the program. Specifically, the study aims to:

a) review the OTOP-Philippines policy and its relevance to MSME needs and

development priorities;

b) identify the elements of the program and determine their effectiveness;

c) understand the profile of OTOP-participating enterprises and entrepreneurs;

d) assess the scale of OTOP-business operations; and

e) assess the entrepreneurs’ perception of the program.

A survey questionnaire was used to gather data from the respondents. A total of 31

OTOP-enterprises from the three major regional groupings in the Philippines (11 from Luzon,

10 each from Visayas and Mindanao) participated. The questionnaire was divided into five

parts. Part I gathered data on the profile of the enterprises and Part II asked information

about the profile of the entrepreneurs and their motivations or reasons for engaging in their

respective businesses. Part III inquired on the entrepreneurs’ business prospects as well as

business-related problems they encountered, while Part IV looked into their marketing

strategies. Part V sought to gather information on the perception of the entrepreneurs about

the OTOP program. The questionnaire also allowed the respondents to express their feelings

and insights for each of the component being measured. The data gathered was then analyzed

using descriptive statistics.

In addition, three case studies were developed to highlight the experiences of

enterprises participating in the program and to validate the survey data. OTOP-related

documents and government reports were reviewed to assess the performance of the program.

1.1 Policy Framework

The OTOP-Philippines program must be viewed within the broader context of micro,

small and medium enterprises (MSME) development policy in the country. While there has

been a number of legislations and government initiatives in the past that promotes the

creation of rural cooperatives and enterprises, it was Executive Order (EO) No. 176 issued in

2003 that paved the way for the development of a comprehensive program to promote “Isang

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Bayan, Isang Produkto” (One Town, One Product). The said EO stipulates the objectives of

the Program:

[…]Stimulating local economic activity and small and medium enterprise (SME) growth,

generating jobs, developing the countryside, and sustaining the anti-poverty thrust of

government through countrywide lending to SMEs. […] For every city or municipality in the

country, a product or service cluster will be identified for funding support, such that an SME

offering such product or service in the said city or municipality shall be eligible to apply for a

loan with a Funding Source.

The Magna Carta for Micro, Small and Medium Enterprises (or Republic Act 6977 as

amended by R.A. 8289, and amended further by R.A. 9501 on May 23, 2008) provides the

comprehensive legal framework to promote, develop and assist MSMEs in the Philippines. It

stipulates the fundamental policy of the government for MSME development:

Recognizing that MSMEs have the potential for more employment generation and economic

growth and therefore can help provide a self-sufficient industrial foundation for the country, it

is hereby declared the policy of the State to promote, support, strengthen and encourage the

growth and development of MSMEs in all productive sectors of the economy particularly

rural/agri-based enterprises. To this end, the State shall recognize the specific needs of the

MSMEs and shall undertake to promote entrepreneurship, support entrepreneurs, encourage

the establishment of MSMEs and ensure their continuing viability and growth and thereby

attain countryside industrialization […] (Sec. 2, R.A. 9501).

The notion of MSMEs varies widely from country to country, and there is no single

definition by which MSMEs can be understood. In the Philippines, MSMEs, as defined in

R.A. 9501, refer to ―any business activity or enterprise engaged in industry, agribusiness

and/or service, whether single proprietorship, cooperative, partnership or corporation whose

total assets, inclusive of those arising from loans but exclusive of the land on which the

particular business entity’s office, plant and equipment are situated, must have value under

the following categories:

Table 1: Categorization of Enterprises by Asset Size

Category Asset Size

Micro Not more than PhP 3,000,000

Small PhP 3,000,001 – PhP 15,000,000

Medium PhP 15,000,001 – PhP 100,000,000

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Moreover, R.A. 9501 features the following important amended provisions (MSMED

Council 2009):

Mandatory allocation of credit resources of all lending institutions for MSMEs for 10

years, increasing banks’ allocation of their loan portfolio to MSMEs of at least 10%,

and providing for administrative sanctions and other penalties to be imposed on

lending institutions for non-compliance with the mandatory credit allocation

provision;

Revision of MSME definition, raising the ceiling to qualify as a micro-enterprise to

assets of not more than PhP 3 million from the previous threshold of PhP 1.5 million;

small enterprises, with total assets of PhP 3 million to not more than PhP 15 million;

and medium enterprises, from PhP 15 million to not more than Php100 million, from

the previous threshold of PhP 60 million;

Increase in the capital stock of the Small Business Corporation, the government’s

financial institution focused on assisting MSMEs, from PhP 5 billion to PhP 10

billion, and the creation of a Venture Capital Microfinance Trust Fund under the

Corporation to promote business opportunities as available to MSMEs; and

Strengthening of the MSME Development (MSMED) Council, which is assigned to

formulate an MSMED Plan and integrate various government and private sector

initiatives.

Seeing the huge potential of micro-enterprises to foster economic activities and

employment generation, R.A. 9501 specifically articulates the needs of micro-enterprises as

distinct from small enterprises, and calls for interventions and programs to address those

needs and support the mainstreaming of micro-enterprises. As of the 2009 data of the DTI,

there are 780,437 registered business establishments in the country. Of this number, 99.6%

are MSMEs: 91.1% or 710,822 are micro-enterprises; 8.1% of 63,529 are ―small‖; and 0.4%

or 3,006 are ―medium‖. Large enterprises account for only about 3,080 (or 0.4%).

Collectively, MSMEs employ about 63.7% or 3,595,641 of total jobs: 30.7% by

micro-enterprises; 25.7% by small enterprise; and 7.4% by medium enterprises. It is also

estimated (NSO 1994) that MSMEs contribute about 30% to total sales in the manufacturing

industry, and around 60% of exporters belong to MSME category, contributing about 25% to

total export revenues (SERDEF/UP-ISSI 2001). As such, MSMEs play an important role in

the country’s economic development through their contribution to rural development and

decentralization of industries, creation of employment opportunities and more equitable

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income distribution, use of indigenous resources, creation of backward and forward linkages

with existing industries, and entrepreneurial development.

Table 2: Distribution of Enterprises, by Category and Share in Employment

Category No. of

Establishments Percentage Employment Percentage

Micro 710,822 91.1% 1,731,082 30.7%

Small 63,529 8.1% 1,449,033 25.7%

Medium 3,006 0.4% 415,526 7.4%

MSMEs 777,357 99.6% 3,595,641 63.7%

Large 3,080 0.4% 2,049,298 36.3%

TOTAL 780,437 100.0% 5,644,939 100.0%

Source: DTI; NSO

The national export development strategy likewise stipulates the promotion of SMEs

as an important component of stimulating economic growth and rural development. Within

the framework, ―the formation and creation of industrial zones is also a mechanism to

disperse industrialization to other parts of the country to stimulate economic growth, while

clustering is hoped to spur the growth of small and medium enterprises across the country in

partnership with other government agencies, the private sector and local governments‖

(Reyes-Macasaquit 2008). Furthermore, ―the 2005-2007 Philippine Export Development

Plan (PEDP) called for sustaining the clustering approach to industry development with

special emphasis on regions and provinces with export-oriented cities/municipalities covered

by the One-Town, One-Product (OTOP) initiative‖ (ibid.). ―Industry clustering is now the

[Philippines’] key strategy towards an inclusive economic growth that is both efficient and

sustainable‖ (Cruz 2011).

The Medium-Term Philippine Development Plan, 2004-2010, outlined the dual

strategies of product development through OTOP and credit provision through SULONG

(SME Unified Lending Opportunities for National Growth) to support three million

entrepreneurs and generate six to 10 million jobs:

The One Town-One Product (OTOP) Program shall be implemented. This involves the

development and promotion of a product or service where a town has competitive advantage.

The OTOP interventions include: provision of a comprehensive package of assistance to

MSMEs and OFWs through a convergence of services by local government units, national

government agencies and private sector in product/design development, skills and

entrepreneurship training, marketing assistance and introduction of appropriate technologies.

OTOP also promotes the Big Enterprise-Small Enterprise Program as a source of technology

7

and market, ensures sustainability of the MSMEs through the industry clustering approach by

capitalizing on complementation among towns within a province or region. Technology based

entrepreneurship shall be encouraged and supported (MTPDP 2004-2010, p. 14).

In 2010, the Philippine gross domestic product (GDP) grew by 10.9% to PhP 8.513

trillion. The highest growth was posted by the industry sector at 14.9%, followed by the

service sector at 10.6%. The primary sector of agriculture, fishery and forestry grew only by

0.6 percentage points to 3.9%. More than half (54.8%) of the GDP is accounted for by the

service sector, while agriculture is lagging behind contributing only about 14% of GDP.

Clearly, there is a need to boost the growth of agriculture and agro-processing business

activities in order to disperse economic development in the countryside and reduce poverty in

rural areas. In a country like the Philippines where urban-rural divide is very evident, rural

areas are sharply lagging behind their urban neighbors. Unlike in Japan, industries co-exist in

harmony with farms in rural areas and blend with the rural culture. Through the OTOP

program, rural economies are envisioned to be revitalized by promoting agriculture and agro-

processing enterprises.

Table 3: GDP by Industrial Origin (At current prices; In Million Pesos)

Seeing the benefits that the OTOP program has generated in the past six years, the

present Aquino government decided to pursue it. According to DTI Secretary Gregory

Domingo, ―the implementation of OTOP has been extended by the present administration,

since the said programs proves to be an effective strategy in stimulating economic

development in the countryside‖ (De Leon 2011). The program will be pursued and scaled-

up as an integral component of the regional clustering program and will be imbedded in the

tourism promotion program (Ho 2011).

Clearly, the success of the OTOP program, or any local economic development

initiative, would not have been realized if not for the cooperation and support of the local

government units (LGUs). Reyes-Macasaquit (2008) contends that ―the local governments

Value Growth % Share Value Growth % Share Value Growth % Share

GDP 8,513,034 10.9% 100.0% 7,678,918 3.6% 100.0% 7,409,369 11.5% 100.0%

Agriculture, Fishery and Forestry 1,182,371 3.9% 13.9% 1,138,334 3.3% 14.8% 1,102,465 - 14.9%

Industry sector 2,663,497 14.9% 31.3% 2,318,882 -1.2% 30.2% 2,347,802 - 31.7%

Service sector 4,667,166 10.6% 54.8% 4,221,702 6.6% 55.0% 3,959,102 - 53.4%

Source: National Statistical and Coordination Board (NSCB)

2010 2009 2008

8

Develop the

Countryside Through

Establishment of

SMEs

Business Enabling Environ-

ment

Access to

Finance

Capacity

Building

Market System

Develop-ment

Technical

Intervention

have an increasing role to play in the country’s industrial development, particularly since they

have been granted increased autonomy to manage the economic and social affairs of their

areas of jurisdiction. Some LGUs have enacted their own investment codes in an effort to

develop indigenous industries. The OTOP program and industry clustering initiatives are

promising developments in the area of local economic development that should be

aggressively pursued‖.

1.2 Program Design and Implementing Structure

OTOP-Philippines was conceptualized to achieve the twin purpose of supporting the

creation and growth of MSMEs and rural enterprises, and generating jobs as a means of

reducing poverty. The program supports micro, small and medium enterprises to

manufacture, offer and market distinctive products or services through the use of indigenous

raw materials and local skills and talents. It offers a comprehensive assistance package

through a convergence of services from local government units, national government

agencies, and the private sector. This includes: (a) business counseling, (b) skills and

entrepreneurial training, (c) product design and development, (d) appropriate technologies,

and (e) marketing (see http://otopphilippines.org/aboutus.html).

Source: Cruz 2010.

Fig. 1: Framework of the OTOP-Philippines Program

To achieve its goals, according to the OTOP accomplishment report (Cruz 2010)

refinements in the implementation of the OTOP program have led to the development of the

five outcome portfolios: (1) Business enabling environment to include policy support; (2)

Access to finance to include both public and private funds; (3) Market system development to

9

provide marketing models; (4) Learning and innovation for systematic program

enhancements; and (5) Sector competitiveness using the value chain approach to facilitate

convergence of stakeholders and business development service providers.

Corresponding to these desired outcomes are the following strategies that guided the

activities and initiatives undertaken:

Provide access to comprehensive and focused support programs to enhance

managerial and technical capabilities of implementers. This includes the conduct of

training, seminars and other assemblies and online mentoring.

Provide support for the improvement of processes in the delivery of services, ranging

from reducing the cost of doing business, advocacy and promotion, recognition of

best practitioner;

Provide opportunities for expanding of existing businesses. Activities falling under

this strategy consist of granting incentives based on product quality and adherence to

standards;

Promote comprehensive support to enhance market access. This includes establishing

market database, trade fair and mission participation, market matching, market

consolidation, pasalubong (gifts and souvenirs) centers, domestic consumption

campaigns, product development and promotions;

identify and implement programs to bridge financing needs, to involve access to

financing, financial brokering, financing forum and donor forum/consultancy; and

Develop and implement advocacy program to improve the levels of awareness and

support to the OTOP Program through the enhancement of the website, promo

collaterals, audio-visual presentations and through the adaptation of the OTOP

program to global concerns and trends (such as climate change, corporate social

responsibility, and monitoring and evaluation systems).

The Department of Trade and Industry (DTI) takes the lead in program planning and

implementation at the national and sub-national levels, primarily acting as the coordinating

body of all OTOP-related initiatives. Other national government agencies such as the

Department of Science and Technology (DOST), Department of Tourism (DOT), Department

of Agriculture (DA), Department of the Interior and Local Government (DILG), Department

of Labor and Employment (DOLE), as well as government financing institutions like Small

Business Corporation, Land Bank of the Philippines (LBP), and the Development Bank of the

Philippines (DBP) also take part in the program by providing business support services and

access to financing. At the local level, the mayor of each city or municipality has the

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Department of Trade & Industry – RODG

DOT DA DOST GFIs

MSME MSME MSME MSME

MSME Development Council

MSME Development

Plan

OTOP-Philippines

Regional Level

Government Agencies

Provincial and Municipal Level Government

Agencies

National and Local Sub-sector

Associations

National Level Government Agencies

DILG DOLE

responsibility of leading in identifying, developing and promoting a specific product or

service which the locale has the competitive advantage.

Source: Author

Fig. 2: OTOP-Philippines Implementing Structure

Through a long process of consultations with national government agencies, local

government units and the private sector, regional flagship OTOP were identified in which the

city/municipal OTOP were to be aligned. Table 3 shows the OTOP products for the 16

regions of the country.

Table 4: Regional Flagship OTOP

Name of Region OTOP Product

CAR Roasted Coffee

Ilocos Region Bangus

Cagayan Valley Home furnishings

Central Luzon Lanterns

CALABARZON Paper Mache

MIMAROPA Woven Buntal

NCR Healthcare and Wellness Services

Bicol Region Ceramics

Western Visayas Loom Woven Products

Central Visayas Woven Rafia

Eastern Visayas Mussels

Samboanga Peninsula Seaweeds

Northern Mindanao High-value Vegetables

Southern Mindanao Banana Chips

SOCSARGEN Fresh Banana

CARAGA Palm Oil

Source: Cruz 2010.

The OTOP-Philippines identified five performance indicators against which the

program was measured: (i) employment generated; (ii) investments; (iii) domestic sales of

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OTOP products; (iv) export sales of OTOP products; and (v) number of enterprises assisted

or developed.

The accomplishment report (Cruz 2010) reveals that the program exceeded its

performance targets, but employment. From 2005 up to the third quarter of 2010, the

program implemented various activities and interventions that generated positive results.

Export sales achieved USD 650.65 million, and domestic sales of PhP 15.6 billion. The

number of enterprises assisted reached 55,512 or 163% of target, which in turn created

417,489 jobs. Furthermore, the program attracted total investments of PhP 10.28 billion or

138% of target.

Table 5: OTOP-Philippines Performance (2005 – 2010Q3)

Performance Indicators

Targets Accomplishments

Total % Accomp. 2005 2006 2007 2008 2009 2010Q3

Employment 668,000 417,489 62% 70,439 70,609 70,733 85,419 84,268 36,021

Investments (PhP B) 7.43 10.28 138% 0.814 1.891 2.331 2.618 1.663 0.960

Domestic Sales (PhP B) 12.38 15.60 126% 1.302 1.808 2.774 3.565 3.614 2.532

Exports (USD M) 522.00 650.65 125% 85.19 92.23 105.40 106.92 173.91 87.00

MSMEs Assisted/Dev'd. 33,964 55,512 163% 6,599 7,928 9,291 13,044 11,741 6,909

Source: DTI 2010.

In addition, the same report mentioned other important accomplishments of the

program: increased Pasalubong Centers (1,050) that carry OTOP products; OTOP market

outlets (5,121); product prototypes produced (6,783); new product designs launched (7,781);

conducted two National OTOP Summits; and facilitated international trade missions. More

importantly, ―of the 1,518 cities and municipalities of the Philippines, 1,497 of them or 99%

are now homes to active OTOP enterprises that have benefited from all forms of support from

both their respective local governments and the national government.‖

2 Presentation and Analysis of Survey Results

2.1 Background of enterprises

The survey data reveals that the majority, 71% (22), of enterprises participating in the

OTOP program are self-owned, i.e., sole-proprietorship. This is understandably so because

most family-owned micro or small enterprises prefer this form of business organization due

to its relative ease of formation which only requires business name registration with the

12

provincial DTI office and the business permit from the municipal office. The ―others‖, 29%

(9), are organized either as cooperatives, corporations, or business units of not-for-profit

organizations.

In terms of type of business activity, 39% are engaged in handcraft production, while

26% are into food processing. Small manufacturing accounts for 16%, while agribusiness

and agri-based products are 13% and 6%, respectively.

Fig. 3: Distribution of respondent-enterprises by type of ownership and business activity

As can be gleaned from Table 5, 51.6% of the enterprises employ 10 workers or less,

while 32.3% employ 11 to 20 workers. Only a few companies have more than 30 employees.

Likewise, seven out of 10 companies have capitalization of PhP 500,000 or less, while about

16% have capitalization of more than PhP 1 million. About 64% of the firms have annual

sales turnover of PhP 1 to PhP 3 million. These figures suggest that the large majority of the

enterprises surveyed participating in the OTOP program are ―small‖ in terms of the scale of

their operations.

Table 6: Scale of OTOP Firms

Self-owned,

71%

Others, 29%

Type of Company

Food processing,

26%

Small manufacturi

ng, 16%

Handcraft, 39%

Agribusiness, 13%

Agri-based products,

6%

Type of Business

No. of Workers Freq. PercentageCapital

(Php '000)Freq. Percentage

Sales

(Php '000)Freq. Percentage

<10 16 51.6% <100 12 38.7% <1000 0 0.0%

11-20 10 32.3% 100-500 10 32.3% 1001-3000 20 64.5%

21-30 0 0.0% 501-1000 4 12.9% 3001-5000 2 6.5%

31-40 2 6.5% 1001-3000 2 6.5% 6001-9000 4 12.9%

41-50 1 3.2% 3001-5000 1 3.2% 9001-12000 0 0.0%

51-60 0 0.0% 5001-10000 1 3.2% 12001-15000 1 3.2%

61-70 2 6.5% >10001 1 3.2% 15001-20000 0 0.0%

>20000 2 6.5%

No answer 0 0.0% No answer 0 0.0% No answer 2 6.5%

31 100.0% 31 100.0% 31 100.0%

Employment Capital Annual Sales

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2.2 Profile of entrepreneurs

Table 6 shows the profile of the respondent-entrepreneurs as to gender, age, level of

educational attainment and commitment to the business.

Table 7: Profile of Respondent Entrepreneurs

The enterprises surveyed are predominantly owned or managed by women with more

than 64% of the respondents. This somehow validates the popular observation of the

growing participation and increasing role of women in setting-up and managing rural

enterprises. In addition, these micro-enterprises are predominantly in the handcraft and food

processing sectors. These types of business activities are relatively convenient for women to

put up due to ease of entry and do not require big capital. Women are also naturally inclined

to engage in food processing and handcraft business because these can be done at home while

performing their household roles.

Another view in the predominance of ―women-owned‖ micro and small enterprises is

that wives are actually the ones doing the paper work of registering the business while the

husbands are either employed or busy supervising the business. Registering a business may

take long hours of waiting and going back and forth, to which men mostly do not have the

patience. To avoid complications and to fast-track processing, the business is registered in the

name of the wife instead. However, in most cases, business decision-making is a shared

responsibility of the couple.

Category Freq. Percentage Category Freq. Percentage

Gender Level of Education

Male 8 25.8% Primary School 1 3.2%

Female 20 64.5% Secondary School 5 16.1%

No answer 3 9.7% Diploma 4 12.9%

31 100.0% University Degree 20 64.5%

No answer 1 3.2%

Age Range 31 100.0%

< 30 1 3%

31-40 3 10% Commitment to Business

41-50 11 35% Full-time 30 96.8%

51-60 10 32% Part-time 1 3.2%

> 61 3 10% 31 100.0%

No answer 3 10%

31 100%

14

As to age, the large majority of entrepreneurs surveyed are within the age ranges of

41-50 years old (35%) and 51-60 years old (32%). There are not so many younger

entrepreneurs below 40 years old.

The survey further reveals that the entrepreneurs are well-educated—64% of them

have college or university degree, and 16% completed secondary education. Almost 13%

have undergone some formal skills or vocational training. Moreover, almost all (97%)

reported that they work full time in the business making it the family’s major source of

income.

In starting up the business, the respondents used their own money as capital or

borrowed from relatives and friends, or obtained loans from financing institutions. Some

received grant from government agencies. The entrepreneurs were highly motivated by their

sense of self-fulfillment in owning and running their businesses. This gives them the

freedom to employ their skills and knowledge in doing their work without having someone

telling them what to do. Others ventured into business to augment household income while

allowing them to spend more time with the family. Contributing to society by providing

employment opportunities and sense of self-worth to workers, particularly to women, were

noble reasons behind why many entrepreneurs started the business. To gain social

recognition as an ―entrepreneur‖ also figured as one of the motivating factors.

2.3 Business prospects

Three out of four enterprises surveyed have positive outlook on their business. More

than half (52%) said that their current businesses are doing well, while 23% said that their

businesses are performing very well. On the other hand, 23% mentioned that their businesses

are pretty normal and only 3% said that their current business performance is bad. The

findings suggest that the market acceptance of the OTOP products is growing with increasing

demand both from local and export markets.

Based on the OTOP-Philippines accomplishment report mentioned earlier, the OTOP

enterprises have demonstrated very positive business potential. The growth in both domestic

and exports sales indicates the increasing market acceptance of the OTOP products. Given

the right combination of business development services and access to financing, those OTOP-

participating enterprises can be competitive. In addition, that 99% of city and municipal

governments have adopted the program is a manifestation that OTOP-Philippines have

become the primary strategy for local economic development.

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Table 8: Evaluation of Current Business

Evaluation of Current Business Frequency Percentage Rank

Very Good 7 23% 2

Good 16 52% 1

Normal 7 23% 2

Bad 1 3% 4

Very Bad 0 0% 5

Total 31 100%

Access to financing tops the list of the problems that the enterprises are experiencing

as mentioned by almost all (97%) of the respondents. This validates the findings of the

―Doing Business 2012‖. Overall on the ―ease of doing business‖, the Philippines is ranked

136th

out of 183 economies indicating the need to institute more reforms to make the business

enabling environment more conducive to the creation and growth of enterprises. On the ―ease

of getting credit‖, the Philippines is ranked 126th

out of 183 economies showing the relative

difficulty of getting credit particularly by small business establishments. Firms consistently

rate access to credit as among the greatest barrier to their operation and growth. This reveals

that despite the provision of R.A. 9501 for mandatory credit allocation for MSMEs, the

availability of funds from government financing institutions, and the liquidity of the banking

sector, the MSMEs’ are still having difficulty accessing credit; the primary reason being is

the lack of hard collateral.

Fig. 4: Business Problems Encountered

Problems related to marketing and availability of raw materials ranks second with

84% of the respondents having problems along this area. Moreover, technical problems

(production, product development, packaging, etc.), employment related problems, and

97%

84%

84%

81%

77%

74%

13%

Financial

Marketing

Raw Materials Availability

Technical

Employment

Transportation

Others

Business problems encountered

16

transportation and logistics were encountered by 81%, 77%, and 74% of the respondents,

respectively.

Table 9: The Philippines compared to global good practice and select Asian economies

on the ease of doing business

That the Philippine MSME sector is still largely uncompetitive can be partly

explained by the compounding of financial, business development, and structural problems

that the entrepreneurs are experiencing as shown above. In the 2010-2011 Global

Competitiveness Index, the Philippines is ranked 85th

out of 132 countries/economies

surveyed. Such ranking of the Philippines lags behind those of its Asian neighbors such as

Singapore (3rd

), Malaysia (26th

), Thailand (38th

), Indonesia (44th

), and Vietnam (59th

).

2.4 Marketing

More than half (58%) of the entrepreneurs surveyed are exporting their products,

while the rest cater to the domestic market. This validates the earlier estimate that 60% of

exporters are MSMEs. Further, that the majority of the OTOP enterprises are export-oriented

somehow corroborates the increasing export sales record of OTOP in Table 4 above. These

enterprises are able to tap the export market by either directly selling to companies abroad,

selling to local company that consolidates and exports products, or subcontracting from an

exporting company.

Ease of Doing Business 2012 - Global Rank

Economies Rank DB2012 Rank DB2011

Singapore 1 1

Hong Kong SAR, China 2 2

Thailand 17 16

Malaysia 18 23

Japan 20 20

Vietnam 98 90

Bangladesh 122 118

Indonesia 129 126

Philippines 136 134

Cambodia 138 138

Lao PDR 165 163

Timor Leste 168 169

Source: Doing Business 2012, WB/IFC

17

Fig. 5: Distribution of Enterprises as to Channels of Distribution and Pricing Strategies

Seven out of ten (68%) of surveyed enterprises are distributing their products through

wholesale arrangement either to local retailers or exporters. More than half (52%) are also

engaged in retailing in their own shops, while 48% sell their products through bazaars, trade

fairs, in malls, and in showroom of government agencies. Almost all (97%) of the

respondents said that they decide their own pricing scheme using the basic cost-plus formula

[selling price = total cost (raw materials + labor + overhead) + margin].

Overall, Philippine export sales grew by 33.71% in 2010 to USD 51.392 billion from

USD 38.435 billion in 2009 (see Table 8 below). Traditional exports grew by 47.27% to

USD 28.274 billion, relying heavily on electronic products. But it should also be noted that

almost all product categories where OTOP contributes posted increase in sales: garments and

textiles, 11.93%; wearable, 0.89%; food, 1.78%; home furnishing, 23.18%; marine products

and carrageenan, 12.62%; giftware and holiday decors, 11.44%. Coconut products recorded

the highest growth at 88.25% to USD 1.508.47 billion. This is a good indication that the

OTOP-supported products are gaining wider export market acceptance. Promoting these

products also reduces the country’s reliance on electronic products that are more vulnerable

to adverse export market developments.

In 2010, according to the National Statistics Office, the top nine destination countries

for Philippine exports are China (19.52%), Japan (15.17%), USA (14.70%), Singapore

(14.27%), Germany (5.17%), Netherlands (4.73%), Republic of Korea (4.34%), Thailand

(3.48%), and Taiwan (3.41%).

68%

52%

48%

29%

10%

0%

0% 20% 40% 60% 80%

Wholesale

Own shop

Others*

Street stall or booth

Cooperative

Public market

Distribution Channels

58%

42%

0% 50% 100%

Yes

No

Export Products?

97%

3%

0% 100% 200%

Decideown*

Others

Pricing of Products

18

Table 10: Philippine Export Sales Report (F.O.B Value in Million USD)

The following table summarizes the respondent-enterprises’ views and practices on

the mix of marketing strategies that they employ. Capitalizing on the unique features of the

products (such as distinct taste, craftsmanship and design, and quality certification) is the

primary product differentiation strategy. Others have invested in good packaging to establish

their brands in the domestic market. To achieve higher market share, the enterprises sees that

participating in trade fairs and mission is an effective strategy. In addition, by continuously

offering new and better products, maintaining high product quality, and securing product

standards certifications, the enterprises would be able to increase their market acceptability.

Table 11: Summary of Marketing Strategies (a)

How to differentiate the products?

How to achieve higher market share?

Main promotion method Other promotion methods

distinct taste and unique flavors

consistent good product quality

distinct style, unique designs, and exquisite craftsmanship

use export quality materials

capitalizing on

penetrating the mainstream market by participating in local and international trade fairs

aggressive marketing

continuously offering new and improved products

maintaining high

trade fairs and bazaars

word-of-mouth, referrals from clients and friends

kiosk

inclusion in the OTOP catalogue

website, online marketing

LGU endorsements;

free taste, promo at restaurants

endorsements from local government and DTI

word-of-mouth, referrals from customers

through volunteers and friends

COMMODITIES 2010 2009 2008 2007 2006

TOTAL 51,392.54 38,435.81 49,023.17 50,465.72 47,027.88

I TRADITIONAL EXPORTS

1 Semiconductors 23,831.50 15,582.31 21,046.84 23,624.39 22,250.79

2 Garments & Textiles* 1,870.89 1,671.55 2,142.90 2,503.85 2,843.33

3 Machinery & Transport 2,571.92 1,944.92 2,099.94 1,853.79 1,718.12

Sub-total 28,274.31 19,198.78 25,289.68 27,982.03 26,812.24

II PRODUCT MGT. CATEGORY - REVENUE STREAMS

1 Wearables (excl. garments)* 118.66 117.61 153.98 160.66 76.51

2 Food* 1,577.87 1,550.32 1,681.27 1,486.23 1,303.07

3 Motor Vehicle Parts/Components 1,107.21 752.05 901.88 891.58 784.21

4 Home Furnishing* 1,181.02 958.77 1,139.62 1,011.71 825.72

5 Marine Products & Carageenan* 537.84 477.58 808.03 584.84 465.45

6 Giftwares/Holiday Decors* 74.84 67.16 182.92 202.99 206.91

7 Organic Products* 67.32 67.32 67.32 61.68 66.83

8 Electronic Products 7,247.97 6,600.18 7,454.06 7,460.89 7,338.98

9 Mineral Products 1,869.85 1,470.49 2,481.65 2,604.56 2,058.32

Sub-total 13,782.58 12,061.48 14,870.73 14,465.14 13,126.00

III OTHER PRODUCTS

1 Petroleum Products 371.16 292.95 1,240.16 1,108.68 846.36

2 Metal Components 775.31 481.43 577.56 485.32 389.36

3 Coconut Products* 1,508.47 801.31 1,348.25 946.23 756.15

4 Construction Materials 45.51 46.32 182.87 167.57 181.49

Sub-total 2,700.45 1,622.01 3,348.84 2,707.80 2,173.36

IV. OTHERS 6,635.20 5,553.54 5,513.92 5,310.75 4,916.28

Source: National Statistical and Coordination Council

* Commodities where OTOP contributes

19

product standard certifications (GMP/HACCP, OCCP)

premium quality and uses 100% organic ingredients,

chemical free, organically-grown

use recycled materials

local branding

improved packaging

mixed local and imported raw materials

product quality

advocating on organic rice farming

collaborating with local and national government bodies

securing product standards certifications (GMP/HACCP, OCCP)

passing export requirements and standards

use of traditional promotional materials (brochures, leaflets, flyers)

By focusing on the demand of the market, soliciting feedback from buyers and

customers, observing market trends and outlook, and complying with international standards

on product quality and safety, the entrepreneurs surveyed are able to develop new products

that have strong market potential. Creating new and innovative designs for handcraft

products requires a lot of imagination and experimentation particularly in the use of different

raw materials.

Table 12: Summary of Marketing Strategies (b)

How to develop new products?

How to improve product and quality?

How to improve services?

How to gain consumer’s reputation

paying attention to market demand

soliciting feedback from customers

satisfying buyers’ requests

observing market trend and outlook

complying with internationally-accepted manufacturing standards

product research

using imagination in experimenting with materials used by competitors

learn new technology to continuously improve products

continuous skills training

upgrade designs

strict compliance with standards

undertaking research and development (R&D)

market testing and product evaluation

monitoring buyers’ preference

soliciting customers’ feedback

using better raw and finishing materials

regular monitoring

intensive quality control

put value in dealing with customers

evaluation and feedback

ensure availability

maintain quality

consistently deliver commitments to clients on time

reasonably-priced products

unique design of products

maintain professional relationship with buyers and partners

availability of products

open to customers’ feedback

The great majority (84%) of the respondents agree that it is necessary to create

regional brand for the OTOP products to strengthen their market positioning. About a quarter

20

(74%) are optimistic that it is quite possible to create regional brand while 13% thinks that it

is difficult to do so in view of the growing and stiffer competition from other countries.

Fig. 6: Perception of the Respondents on the Necessity and Possibility

of Creating Regional (OTOP) Brand

2.5 General image of OTOP

This section shows the respondent-entrepreneurs’ extent of knowledge of, perception

on the usefulness of, and level of satisfaction with the OTOP program.

More than 60% of the respondents said that they know about OTOP rather well and

32% claimed that they have very well knowledge of the program. Only 6% said that they

don’t have so much knowledge about OTOP. This high degree of awareness of the OTOP by

the entrepreneurs is indicative of the effectiveness of the program’s information campaign

and the extent of reach. Everybody agreed that the OTOP program serves its intended

purpose with 68% saying that it is very useful and 32% saying useful.

Fig. 7: Respondents’ Knowledge and Perceived Usefulness of OTOP

84%

13%

3%

0% 20% 40% 60% 80% 100%

Yes

No

No answer

Necessity to create regional brand

74%

6%

13%

6%

0% 20% 40% 60% 80%

Quite Possible

Not so much

Difficult

No answer

Possibilities to create regional brand

32.3%

61.3%

6.5%

0.0%

0.0%

Know very well

Know rather well

Not so much

Little Knowledge

Never Heard

Knowledge on OTOP

67.7%

32.3%

0.0%

0.0%

Very useful

Useful

Not very useful

Not useful at all

Usefulness of OTOP

21

This positive perception by the entrepreneurs is further validated by their level of

satisfaction with the support they are receiving through the program. More than half (52%)

are very satisfied and 35% are satisfied with the performance of the program as well as with

the support their respective businesses are receiving in the areas of marketing (trade fairs,

market matching), training, product development and design, access to financing (loan, grants

and subsidies), business process and management support.

Fig. 8: Respondents’ Assessment of OTOP Program Support to MSMEs

According to the OTOP Program assessment study (Cruz 2010), there are five types

of interventions that are considered crucial by respondent-OTOP MSMEs to the growth of

their business. These are: product design and development (36%); marketing (31%); skills,

entrepreneurial and business training (19%); business counseling (7%); and loan facilitation

(7%). These findings somehow correspond to the findings of this study given in Fig. 8.

Fig. 9: Evaluation of OTOP Exhibitions

The OTOP exhibitions and trade fairs have likewise benefited the participating

enterprises through (1) sales promotion, (2) understanding consumers’ needs, (3) improving

30

24

15

10

10

8

1

Marketing

Training

Design

Financial

Business Process

Management

Others

Type of support from OTOP program

51.6%

35.5%

12.9%

0.0%

0.0%

Very satisfied

Satisfied

Average

Not Satisfied

Unsatisfied

Evaluation of OTOP Support

26

18

17

11

10

2

0 5 10 15 20 25 30

Sales promotion

Understanding consumers' needs

Quality improvement

Price setting

Knowledge on the competitor's…

Others

Evaluation of OTOP Exhibition

22

the quality of the products, (4) appropriate pricing, and (5) having knowledge about the

competitors’ products. Those trade fairs were organized by the government in collaboration

with the sector associations at the provincial, regional and national levels primarily to provide

venue where OTOP enterprises can showcase their products. Those events also provided the

entrepreneurs to meet buyers and talk to consumers about their perceptions of the products,

their preferences and consuming habits.

Finally, the respondents articulated their insights on how the OTOP program and

policies can be further enhanced. The majority of the enterprises suggested that financing

should be made more accessible to MSMEs to allow them better opportunities to improve

their products, upgrade their plant, machineries and equipment, and to augment their working

capital. They also suggested that a more permanent place in Metro Manila could be provided

for OTOP products to be sold throughout the year and not only during trade fairs or exhibits.

An OTOP shop in central commercial areas in Metro Manila will give the products continued

market presence and will be more accessible to the consumers.

Other suggestions include:

Strengthen partnership with, and support from the local government units

Provide common service facilities for OTOP enterprises in the municipal level

Enhance assistance on product development, design, packaging, and promotional

activities

Provide subsidies for participation in OTOP activities and trade exhibits

Fair treatment among OTOP beneficiaries

However, some respondents believe that ―entrepreneurs should not be spoon-fed all

the time so that they will learn how to survive and innovate‖.

3 Case Studies

The case studies of three enterprises from Pampanga, Cavite and Davao City

presented in this section highlight the experiences of enterprises participating in the OTOP

program. They demonstrate the different forms of assistance that the program provides

depending on the needs of a particular enterprise.

23

3.1 Case 1: Navarro Foods International, Pampanga

Navarro Foods International is engaged in

the food processing business that produces crab

paste, fermented shrimp, and fermented mudfish.

Gil Navarro, the business owner, had his

humble beginning in the late 1970s when he

decided to cook crab paste to augment his meager

income as a tailor. Coming from the area of crab

paste makers in Masantol, Pampanga, he

experimented concocting his own recipe of crab paste. With an initial capital of PhP 400, he

purchased a sack of crabs, and processed them into crab paste in his small kitchen.

Surprisingly enough, Mr. Navarro’s recipe exceeded the taste and quality of other crab paste

makers. From then on, he would sell his product to households and eateries in the

neighboring province of Tarlac since Pampanga was already saturated with crab paste

vendors. The venture turned out to be so profitable that he started selling his product to wet

markets and small restaurants. Eventually, distributors became interested in his products and

began carrying his brand.

Navarro’s Taba ng Talangka had its break in 1980s when a distributor of food

products based in Manila, started buying his product in large volume. Through the assistance

of DTI, DOST and other government agencies, Mr. Navarro was able to improve the

packaging of his products. He participated in trade fairs and exhibits sponsored by DTI and

Philfoodex, where he became a member. To meet the growing demand for his product, he

increased his daily production from 50 kilos to 1,000 kilos of crabs and hired additional

workers. Mr. Navarro also ventured to other products such as balao-balao (fermented

shrimp) and burong isda (fermented fish).

Navarro Foods has a production area, office and retail outlet beside his house in

Masantol, which he renovated through a loan of PhP 950, 000 from SB Corporation in 2003.

He also received assistance from DOST on product packaging and in securing registration

with the Food and Drugs Administration (FDA). His products are packed either in bottles or

cans and properly labeled. When crab paste was identified as the OTOP of the municipality

of Masantol, Pampanga, Navarro Foods was one of the first enterprises to join the program.

Through the help of DTI, Navarro Foods underwent compliance and accreditation to Hazard

24

Analysis and Critical Control Points (HACCP) to enable the product to enter the

supermarkets.

In early 2005, Navarro Foods opened an OTOP retail outlet in a mall in Manila.

Aside from Taba ng Talangka, he also carries sweets and delicacies from other manufacturers

in Pampanga, most of who are members of the Sweets and Delicacies Association.

Eventually, he added another stall to carry non-food products also from Pampanga. This

venture proved to be very profitable. Mr. Navarro relates that only about 40 percent of his

sales are from crab paste.

Undoubtedly, Navarro’s Taba ng Talangka has already established its niche in the

market. The success of Mr. Navarro in the local market is overwhelming. His dream is to

penetrate the export market for his product. Having this in mind, he changed his business

name to Navarro Foods International, Inc. and incorporated with the Securities and Exchange

Commission (SEC) on February 20, 2003. In September 2005, he joined a Trade Mission to

the USA and Canada, organized DTI. Mr. Navarro is overwhelmed by the fast growth of his

business with the support from government and other private business organizations.

Mr. Navarro thinks that the business is doing pretty well. However, like most

growing family enterprises, the company is having difficulty in dealing with employment

issues since most of the workers are relatives who seem not to treat company policies

seriously. The distance of the source of raw materials, which is a 12-hour land trip, causes

high transportation costs. Added to this is the declining supply of crab meat. Mr. Navarro is

well aware of the OTOP program and he thinks that it is very useful for enterprises like his to

be part of the program. The OTOP fairs and exhibitions opened market opportunities for the

company. Developing a strong brand is important in penetrating new markets and

maintaining market position, says Mr. Navarro.

Currently, the company is working on the fabrication and installation of retort and

boiler machines through a loan from the Department of Science and Technology (DOST),

which is part of the OTOP program. The project is to be completed in 2011.

3.2 Case 2: KATAKUS, Inc., Davao City

KATAKUS or Kababayen-an alang sa Teknolohiya nga Haum sa Kinaiyahan ug

Kauswagan, Inc. (Empowering Women through Appropriate Technology) was organized in

May 1996 by the defunct Women in Development Technology Institute. As a

nongovernmental organization, its main program is sustainable agriculture but it also serves

25

as the marketing arm of agricultural products of its partner organizations. The Kababayen-an

sa Katipunan Alang sa Kalambuan (KKK) or Katipunan Women for Development, on the

other hand, is an organization of peasant women consisting of 45 members. KKK is the

production arm of KATAKUS based in Panabo City in Mindanao.

The handmade paper project aims to provide livelihood to women to augment their

families’ income. After all, the area has abundant raw materials such as banana stalks, durian

peel, rice straws, cogon grasses, coconut husks, ramie and other fibers that could be used as

basic material for crafts, providing the women with alternative source of income.

KATAKUS produces lampshades, photo frames, photo albums, scrap books, occasion

cards, boxes, candle holders and other novelty items. As a social enterprise, KATAKUS is

aware of its purpose of creating economic and social value by employing women in the

community. Thus, marketing is extensively pursued in both domestic and foreign markets.

There are around 20 distributors in Davao City and Manila, most of which are specialty stores

and handicraft shops. Export destinations include The Netherlands, Japan, USA, Kuwait,

United Kingdom, Hong Kong, Canada and Germany.

KATAKUS started operation only in 2002. Sales slowly rose each year. From

approximately USD 4,000 in 2003, sales doubled in 2004, and increased to USD 10,000 in

2005. In 2006, after the discovery of the durian paper, sales astonishingly increased by 160

percent to USD 28,000. However in 2007, KATAKUS lost some of its export buyers and

sales relied mainly on the local market, although this too decreased by eight percent. At the

height of its operation in 2007-2008, KATAKUS hired as many as 31 piece-rate women

workers earning an average of PhP 200 per day.

What distinguishes KATAKUS from other manufacturers of handmade paper

products is that it uses the durian paper, which was an invention of Betty More, Executive

26

Director of KATAKUS, in 2004. Davao City is the durian capital of the Philippines. Ms.

More claimed that around ten tons of durian peels are generated every day, more during peak

season from July to October. The durian paper was launched in August 2005 during the

Davao City Kadayawan Festival.

Similar to the experience of many export-oriented companies, KATAKUS was badly

affected by the global economic slowdown as its export sales have been declining. Currently,

the company is relying on its local market and in participating in local trade fairs and OTOP

activities in which it is earning about PhP 100,000 a month. Ms. More is well knowledgeable

about the OTOP program through which the company has received assistance in financing,

marketing, and product development. She believes that while these support programs are

very useful in improving the competitiveness of small businesses like KATAKUS, there is a

need for more coordinated and comprehensive effort in addressing critical issues from

production, to financing, to marketing.

As it grows, KATAKUS needs additional tools and equipment to improve further its

production. It needs to continually upgrade the skills of the workers on new techniques and in

handling different materials. Limited capital prohibits the company from hiring enough

personnel to focus on marketing and finance and from investing in machineries. Ms. More is

confident that OTOP program will continue to help KATAKUS realize its potential as a

profitable enterprise by and for women.

3.3 Case 3: Carmfood Enterprises, Cavite

The fish trading and processing business was started by Carmelita’s grandparents in

1971. Fish processing is the common livelihood in their town of Rosario in Cavite. It was a

simple family business set in a small portion of the land where its current plant is located.

The business, which produces smoked and dried fish, was initially registered as Carmen’s

Smoked and Dried Fish Factory. When Carmelita took over, she started expanding both her

market and their product line. Marinated and cooked fish were added to the products.

Nearby cities, supermarkets and Filipinos abroad were included in her target markets. In

1989, the name was changed to Carmfood Enterprises to reflect the transformation of a

simple backyard business into a flourishing one.

Carmelita ventured into this business mainly because of the influence by her parents

and the need to earn higher income. However, she too is driven by her passion for hard-work

and the sense of self-fulfillment.

27

The plant operates in a 9,222 square meter lot with two one-story buildings: the main

processing area and the old building for packaging and storage area. A portion of the lot is

used for parking and the rest of the vast open lot is used for drying.

In the main processing plant, the workers are clustered according to the work

process—initial rinsing, evisceration, de-boning. All the processes are done manually using

basic tools and equipment. Most use hairnets, aprons, masks and rubber boots. Only one

worker wore gloves. Wooden tables are provided but some workers prefer to sit in low

stools as they were used to this working style. These workers with their plastic basin, and

wooden/plastic chairs positioned themselves based on the availability of space in their

designated production area.

There are assigned cooking vats for each product. The smokehouse is still part of the

main processing area where smoking is still done the traditional way with wood shavings and

saw dust. Wooden slates serve as fish trays for drying and smoking. Sun drying is done in the

open lot.

Most of the workers have been with the company for more than 10 years. Workers'

average age is 35 with the oldest at 72. Carmelita herself still helps in the production. The

major functions of the business are divided among her children with the eldest, Carol as the

general manager.

According to Carmelita, the business is doing very good despite the problems that

they encounter in the normal course of operations. Limited capital results in cash flow

problems since some clients pay in terms and cash is mostly tied with inventories while bills

have to be paid on time. During fishing off-season, the company has to buy from other

provinces, which entails additional transportation cost.

28

Carmfoods has been participating in OTOP trade fairs, which according to Carmelita,

is very helpful in promoting their products and in meeting new buyers. Carmfoods products

are available in major supermarkets and groceries. The company is able to export its

products through a local consolidator and exporter. Carmelita says that the OTOP program is

very useful because of all the support that their company is able to get—from access to

financing and business development services to the network that they were able to establish.

Carmfoods is currently constructing its new four-storey plant. Local and national

agencies assisted in the planning to ensure that the plant is compliant to HACCP standards.

Part of the construction cost is covered by their PhP 18 million OTOP loan from the

Development Bank of the Philippines in 2009. Additional equipments for the plant will be

purchased through a loan from DOST. In preparation for their operation, the management

team received trainings on GMP and HACCP

4 Conclusion

The distribution of Philippine business establishments is largely skewed to rural micro

and small enterprises. While these types of enterprises confront many difficulties from

inefficiencies in production, limited capital and lack of access to financing, inferior products,

and limited access to mainstream markets, we have seen from the foregoing discussions that

OTOP-Philippines provides tremendous opportunity for these enterprises to become viable

and competitive in the long run.

Given the number of micro and small enterprises and the very important role that they

play in making the local economy vibrant, we can say that the government’s policy to

promote and support these enterprises is really necessary and crucial to the overall economic

growth and development. The regulatory framework and structural mechanisms are rightly in

place to make the OTOP-Philippines successful. Six years of implementing the program

have generated positive results in terms of investments, sales, enterprises reached and jobs

created.

OTOP-Philippines has reached its intended primary beneficiaries—the rural micro,

small and medium enterprises—that are in need of help and support to sustain their

businesses. The localization of program implementation allowed the program to focus on

sectors and types of business activities that are dominated by rural micro and small

29

enterprises. In addition, the program has given women-entrepreneurs the opportunity to

upgrade their business activity from mere home-based livelihoods into viable enterprises.

Despite an array of business problems they are encountering, the rural entrepreneurs

have very positive outlook for their business. The program has been quite successful in

linking the rural enterprises with the market, both domestic and export. OTOP-Philippines

has opened the doors of the export market to many rural enterprises that otherwise would not

have had the chance to access these markets. That many are in agreement on the necessity

and possibility of creating and promoting a regional OTOP brand for the Philippine products

to strengthen their market presence is a positive indication that those rural enterprises have

already realized the need to go out of their comfort zones and to embrace a bigger challenge

for their businesses. Although many of those enterprises were affected by the global

economic slowdown, they were resilient enough to keep their businesses up and running.

Overall, the entrepreneurs have high praises for the program, which they deem very

useful. They are happy with the kind of support that their businesses are receiving through

the program.

However, there are still areas where more attention should be drawn and where

reforms are needed to make the program more relevant and effective.

1. While OTOP-Philippines is strongly marketing focused, equal attention must be

given to improving the production efficiencies of rural enterprises to increase their

competitiveness. In the handcraft business for instance where production is rarely

mechanized, consistency in product quality is a big problem causing rework,

rejects, wastage and high operating costs.

2. Investment in research and development must be intensified to develop new and

better products that have high market potential. ―SMEs seldom have the means to

follow a well-established, formal, and strategic procedure for commercializing

new ideas‖ (Bolinao 2009). Given these circumstances, the need is great for

increased ―collaboration in terms of financial support and actual R&D outputs‖ to

improve productivity and increase capacity to innovate and upgrade (Reyes-

Macasaquit 2008). The study done by FINEX and ACERD (see Aldaba 2008)

identified the following factors that prevent SMEs from acquiring the necessary

technology or engage in their research and development: lack of funds;

insufficient information; lack of skills in evaluating alternative technologies;

difficulty in meeting government requirements for availing assistance.

30

There is a lot of room for improvement in the processed food sector to

produce foodstuff that will cater to the global market. The growing market

consciousness for health and wellness offers huge potential for organic foods and

this is an area where rural enterprises can definitely strongly participate.

―Ironically,‖ as Tonog (2010b) asserts, ―the growing demand of the market for

environment-friendly and fair products puts a strong pressure on business,

especially on MSMEs in developing countries like the Philippines, to comply with

stringent regulatory standards—from product safety to fair labor practices.‖

3. Financing should be made more accessible to rural micro and small enterprises for

without it they would not be able to scale-up production, invest in modern

technology, or undertake serious research and development activities. As many of

those surveyed agreed, access to financing remains illusive for various reasons.

One of such reasons is the lack of or insufficient collateral needed to borrow

money form formal financing institutions. Another compelling reason is the

entrepreneurs’ inability to comply with the documentary requirements of banks.

Access to financing is crucial to growing MSMEs. Jenkins et al. (2007)

argues that ―credit enables small and medium-sized enterprises to enter the

marketplace, scale-up production, upgrade technology and change or improve

their products and services‖. But access to credit is a major stumbling block to

MSME growth in the Philippines. Despite the apparent availability of funds from

government financing institutions (GFIs), and the liquidity of the banking sector,

the majority of MSMEs’ still has difficulty accessing credit (see ADB 2007).

Zavatta (2008) earlier observed that ―the information that SME can

realistically provide to external financiers often lacks detail and rigor. The

problem is often aggravated by the low level of education of small entrepreneurs,

who may not be in the position to adequately articulate their case‖. Moreover, he

opined that ―the information supplied to bankers and outside investors by family-

owned SME is often not fully accurate and realistic, and opaque behavior may

prevail. Under these conditions, outside financiers tend to adopt a very cautious

attitude toward SME, and either reduce the amount of financing sought or refuse it

altogether‖.

As such, there is a strong case in helping rural entrepreneurs improve their

financial management skills while encouraging financing institutions to develop

and offer financing products that suit the conditions of rural MSMEs.

31

4. The noble intention of the OTOP program is sometimes diminished by too much

politicking at the local level. It has been observed that some mayors choose the

products or service to be promoted under OTOP on the basis of personal business

interest, or as favor to select groups identified with him or her. While the DTI has

clear guidelines in the selection of products or services primarily based on the

locale’s indigenous resources and competitive advantage, these are sometimes

easily set aside. In addition, since politics has been involved in the

implementation of the program, its continuity suffers when there is a change in the

local leadership.

Because of this, private sector participation and leadership in the

implementation of the OTOP program is very important in making sure that the

program is sustained freed from politics and that it will continue regardless of who

the mayor is.

5. To further strengthen the competitiveness of the OTOP industry, structural

reforms are needed to make sure that the business enabling environment is

conducive to the creation and growth of rural enterprises. This includes

streamlining of the business registration process, reducing the barriers to entry and

growth, and making the regulatory regime more predictable.

For example, the high transportation and logistics costs makes it

prohibitive to many rural enterprises to explore and enter new markets, whether

domestic or export. According to the Doing Business 2009, ―the relatively higher

cost of exporting from the Philippines (USD 816 per container) compared to

Malaysia (USD 450), Thailand (US$625), and Indonesia (US$704) makes it

disadvantageous to Philippine MSMEs.‖ Given the export orientation of the

majority of OTOP enterprises, the high cost of exporting lessens the ability of

Philippine exporters to compete regionally and globally.

―The Philippines,‖ Tonog (2010a) argued, ―has a long way to go in

improving its competitiveness. Critical to this is the curbing of corruption at all

levels and streamlining the bureaucracy to stimulate enterprise creation and

harness economic activities.‖

Micro, small and medium enterprises are indeed the backbone of Philippine economy.

They are the engines of economic activity and job creation especially in the countryside

32

where large companies hardly exist. The fact that the Philippines is largely agricultural,

supporting the development of rural agro-enterprises will ensure that the poor benefits from

economic growth. The OTOP-Philippines program, in spite of its limitations, offers

opportunities to thousands of rural enterprises to become viable and competitive. Therefore,

it is imperative that reforms are instituted to make the program truly unleash and harness the

entrepreneurship that is needed to move the Philippines forward. @

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