OTOP-Philippines Enhancing the competitiveness of rural enterprises

Felix Tonog Philippine Business for Social Progress

Manila, Philippines

Email: fatonog@pbsp.org.ph

International conference on

The OVOP Movement and Rural Entrepreneurs in Southeast Asia

Ritsumeikan Asia Pacific University

Beppu-shi, Oita, Japan

15 March 2011

Presentation outline

Introduction

Presentation of Findings

Cases

Conclusions

Introduction

Policy Framework

OTOP-Philippines Implementing Structure

Policy framework

• One Town-One Product (OTOP) –

Philippines was launched in 2004

• Flagship program to support and

promote the growth of micro, small

medium enterprises (MSMEs)

• To improve the competitiveness

and market access of local products

and services

Policy framework

• Magna Carta for MSMEs

– R.A. 9501 – 23 May 2008

– R.A. 8289 – 8 May 1997

– R.A. 6977 – 24 January 1991

• Operational definition of “MSMEs” in the Philippines

• Created the MSME Development Council

• Created the Small Business Guarantee and Finance Corp.

• Mandatory credit allocation for MSMEs of at least 10% of the

banks’ loan portfolio

• Created a Venture Capital Microfinance Trust Fund

MSME defined

• MSMEs 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:

Category Asset Size

Micro Not more than

Php3,000,000

Small Php3,000,001 –

Php15,000,000

Medium Php15,000,001 –

Php100,000,000

Policy framework

Profile of MSME sector

91.6%

7.6%

0.4% 0.4%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

Micro Small Medium Large

Distribution of Enterprises by Category

Source: NSO 2008.

697,077

58,292 3,067 2,973

Total: 761,409

99.6%

758,436

Policy framework

Profile of MSME sector

91.6%

7.6%

0.4% 0.4%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

Micro Small Medium Large

Distribution of Enterprises by Category

Source: NSO 2008.

697,077

58,292

3,067 2,973

Total: 761,409

99.6%

758,436

• 60% of jobs employed by

MSMEs, 33.5% by micro-

enterprises

• 30% MSMEs’ contribution

to total sales in

manufacturing

• 60% of exporters are

MSMEs

• 25% contribution to total

export revenues by MSMEs

Policy framework

Implementing structure

Department of Trade & Industry – RODG

Tourism Agriculture Sci. & Tech. 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

OTOP-Ph program elements

• Business counseling

• Skills and

entrepreneurial

training

• Product design and

development

• Appropriate

technology

• Marketing

• Financing

Presentation of Findings

Background of enterprises

Profile of entrepreneurs

Business prospects

Marketing

General Image of OTOP-Philippines

The majority of participating enterprises are sole

proprietorship engaged in handcraft production and

food processing.

Self -owned,

71%

Ot hers, 29%

Food

processing

, 26%

Handcraft,

39%

Agribusine

ss, 13%

Agri-based

products,

6%

Small

manufactur

ing, 16%

Fig. 2: Distribution of respondent-enterprises by type of ownership

and business activity

More than half of the enterprises employ 10 workers

or less; 7 in 10 companies have capitalization of

Php500,000 or less.

Employment Capital Annual Sales

No. of Workers Freq. Percentage Capital

(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% 101-500 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%

Table 3: Scale of OTOP Firms

Almost all of the entrepreneurs work in the business

fulltime, within the range of 40-60 years old, and highly

educated.

Category Frequency Percentage Category Frequency 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%

Age Range 31 100.0%

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%

Table 4: Profile of Respondent Entrepreneurs

3 in 4 surveyed have positive outlook on their business.

The market acceptance of OTOP products is growing

both in the local and export markets.

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

31 100%

Table 5: Evaluation of Current Business

OTOP-Ph generated investment of Php8.4 billion,

reaped USD417 million in export sales, Php10 billion in

domestic sales, expanded coverage in more

municipalities and cities, assisted 29,639 MSMEs, and

created 312,118 jobs.

Performance

Indicator 2004 2005 2006 2007 2008 1Q 2009 Total

Investments (PhP M) 565.0 814.1 1,891.3 2,330.5 2,618.1 212.1 8,431.0

Employment 1,431.0 70,439.0 70,609.0 70,733.0 85,419.0 13,887.0 312,118.0

Exports (US $ M) 0.2 85.2 92.2 105.4 106.9 27.2 417.0

Domestic Sales

(PhP M) - 1,302.4 1,808.3 2,773.8 3,565.2 544.8 9,995.0

MSMEs Assisted 4,396.0 5,968.0 6,785.0 10,175.0 2,315.0 29,639.0

Source: DTI 2009

Table 2: OTOP Performance (2004 – 1st Quarter 2009)

Access to financing and markets, and availability of raw

materials are the major problems encountered by rural

enterprises.

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

Financial

Marketing

Raw Materials Availability

Technical

Employment

Transportation

Others

Business problems encountered

Fig. 3: Business Problems Encountered

Seven in 10 enterprises are distributing their products through

wholesale arrangement.

More than half are exporting their products, while the rest cater to

the domestic market.

Almost all said they decide their own pricing scheme using the basic

cost-plus formula.

Distribution channels

68%52% 48%

29%10%

0%

0%20%40%60%80%

Whole

sale

Ow

n s

hop

Oth

ers

*

Str

eet sta

ll

or

booth

Coopera

tive

Public

mark

et

Export products?

58%

42%

0%

20%

40%

60%

80%

Yes No

Pricing of products

97%

3%

0%

50%

100%

150%

Decide

ow n*

Others

Fig. 4: Distribution of Enterprises as to Channels of Distribution and Pricing

Strategies

The great majority of the respondents agree that it is necessary

to create regional brand for the OTOP products to strengthen

their market positioning.

About a quarter are optimistic that it is quite possible to create

regional brand

Necessity to create regional

brand

84%

13%3%

0%

20%

40%

60%

80%

100%

Yes No No answ er

Possibilities to create regional

brand

74%

6%13%

6%

0%

20%

40%

60%

80%

Quite

Possible

Not so

much

Diff icult No

answ er

Fig. 5: Perception of the Respondents on the Necessity and Possibility

of Creating Regional (OTOP) Brand

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.

Everybody agreed that the OTOP program serves its intended

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

useful.

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

Know very

well

Know

rather well

Not so

much

Lit t le

Knowledge

Never

Heard

Knowledge on OTOP

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

Very useful Useful Not very

useful

Not useful

at all

Usefulness of OTOP

Fig. 6: Respondents’ Knowledge and Perceived Usefulness of OTOP

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.

0

5

10

15

20

25

30

Type of support from OTOP program

Series1 30 24 15 10 10 8 1

Marke

ting

Traini

ng

Desig

n

Finan

cial

Busin

ess

Mana

geme

Other

Supp 0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

Very

sat isf ied

Satisf ied Average Not

Satisf ied

Unsatisf ied

Evaluation of OTOP Support

Fig. 7: Respondents’ Assessment of OTOP Program Support to MSMEs

OTOP exhibitions and trade fairs have likewise benefited the

participating enterprises through (1) sales promotion, (2)

understanding consumers’ needs, (3) improving the quality of the

products, (4) appropriate pricing, and (5) having knowledge

about the competitors’ products.

0

5

10

15

20

25

30

Sales promotion

Understanding consumers'

needs

Quality improvement

Price setting Knowledge on the

competitors products

Others

Evaluation of OTOP Exhibition

Fig. 8: Evaluation of OTOP Exhibitions

Some suggestions...

• 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.

• A 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.

• Strengthen partnership with, and support from the

local government units.

Some suggestions...

• Provide common service facilities for OTOP

enterprises in the municipality;

• Enhance assistance on product development, design,

packaging, and promotional activities;

• Provide subsidies for participation in OTOP activities

and trade exhibits; and

• Fair treatment among OTOP beneficiaries.

• “Entrepreneurs should not be spoon-fed all the time

so that they will learn how to survive and innovate”

Case Studies

Case 1: Navarro Foods International

Case 2: KATAKUS, Inc.

Case 3: Carmfood Enterprises

Case 1: Navarro Foods Int’l.

Location Pampanga (Luzon)

Product Processed food (local delicacy)

- Crab paste, fermented shrimp and

fish

Market Domestic – supermarkets and

groceries nationwide

Export – through exporters and

distributors

OTOP

assistance

Product development, HACCP,

packaging and labeling, financing,

trade exhibits

Problems Declining supply of crab meat

High transport cost

Dealing with employment issues

Case 2: KATAKUS, Inc.

Location Davao City (Mindanao)

Product Handcraft – novelty items from

handmade paper and scrap

materials

Market Domestic

Export – US, UK, Japan, Hong Kong,

Kuwait, Canada, Germany

OTOP

assistance

Product development, financing,

marketing

Problems Need better tools and equipment

to improve productivity and

product quality; Limited capital;

upgrade workers’ skills

Case 3: Carmfood Enterprises

Location Cavite (Luzon)

Product Processed fish – dried, smoked,

marinated and cooked fish

Market Domestic – supermarkets and

groceries

Export – through local consolidator

and exporter

OTOP

assistance

Training on GMP/HACCP

Financing for the construction of

factory and purchase of new

equipment

Problems Limited capital, seasonal supply of

fish, high transport cost

Conclusion

Conclusion

• OTOP-Philippines provides tremendous opportunity for these enterprises to become viable and competitive in the long run.

• The government’s policy to promote and support these enterprises is really necessary and crucial to the overall economic growth and development.

• 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 enterprises.

Conclusion

• The program has given women-entrepreneurs the opportunity to upgrade their business activity from mere home-based livelihoods into viable enterprises.

• The program has been quite successful in linking the rural enterprises with the market, both domestic and export.

• Rural enterprises have already realized the need to go out of their comfort zones and to embrace a bigger challenge for their businesses.

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

Recommendations for Reforms

• Equal attention must be given to improving the production

efficiencies of rural enterprises to increase their

competitiveness.

• Investment in research and development must be intensified

to develop new and better products that have high market

potential.

• Financing should be made more accessible to rural micro and

small enterprises for without it they would not be able to

scale-up production and invest in modern technology.

Recommendations for Reforms

• Private sector participation and leadership in the

implementation of the OTOP program is very important in

making sure that the program is freed from politics.

• Structural reforms are needed to make sure that the business

enabling environment is conducive to the creation and growth

of rural enterprises.

Thank You!