OTOP Philippines: Enhancing the competitiveness of rural enterprises

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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 to promote 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.

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OTOP Philippines: Enhancing the competitiveness of rural enterprises

  1. 1. 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
  2. 2. Presentation outline Introduction Presentation of Findings Cases Conclusions
  3. 3. Introduction Policy Framework OTOP-Philippines Implementing Structure
  4. 4. 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
  5. 5. 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
  6. 6. Policy framework 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
  7. 7. Policy framework Profile of MSME sector Dis tribution of Ente rpris e s by Cate gory 91.6% Total: 761,409 697,077 100.0% 90.0% 99.6% 758,436 80.0% 70.0% 60.0% 50.0% 40.0% 58,292 30.0% 3,067 7.6% 20.0% 0.4% 0.4% 10.0% 0.0% Micr o Source: NSO 2008. Small Medium 2,973 Lar ge
  8. 8. Policy framework Profile of MSME sector • 60% of jobs employed by MSMEs, 33.5% by microenterprises • 30% MSMEs’ contribution to total sales in manufacturing • 60% of exporters are MSMEs • 25% contribution to total export revenues by MSMEs Dis tribution of Ente rpris e s by Cate gory 91.6% 697,077 100.0% Total: 761,409 90.0% 99.6% 758,436 80.0% 70.0% 60.0% 50.0% 40.0% 58,292 30.0% 2,973 3,067 7.6% 20.0% 0.4% 0.4% 10.0% 0.0% Micr o Source: NSO 2008. Small Medium Lar ge
  9. 9. Implementing structure MSME Development Council National Level Government Agencies Department of Trade & Industry – RODG Tourism Agriculture Sci. & Tech. GFIs MSME Development Plan Regional Level Government Agencies National and Local Sub-sector Associations OTOP-Philippines Provincial and Municipal Level Government Agencies MSME MSME MSME MSME
  10. 10. OTOP-Ph program elements • Business counseling • Skills and entrepreneurial training • Product design and development • Appropriate technology • Marketing • Financing
  11. 11. Presentation of Findings Background of enterprises Profile of entrepreneurs Business prospects Marketing General Image of OTOP-Philippines
  12. 12. The majority of participating enterprises are sole proprietorship engaged in handcraft production and food processing. Agri-based products, 6% Agribusine ss, 13% Ot hers, 29% Small manufactur ing, 16% Self -owned, 71% Food processing , 26% Handcraft, 39% Fig. 2: Distribution of respondent-enterprises by type of ownership and business activity
  13. 13. 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 2 6.5% 31 100.0% No answer 0 0.0% 31 No answer 100.0% Table 3: Scale of OTOP Firms 0 0.0% 31 100.0%
  14. 14. Almost all of the entrepreneurs work in the business fulltime, within the range of 40-60 years old, and highly educated. Category Frequency Percentage Frequency Percentage Level of Education Gender Male Category No answer 25.8% Primary School 1 3.2% 20 64.5% Secondary School 5 16.1% 3 9.7% Diploma 4 12.9% 31 Female 8 100.0% 20 64.5% 31 100.0% University Degree Age Range 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
  15. 15. 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
  16. 16. 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 1,431.0 70,439.0 70,609.0 70,733.0 85,419.0 13,887.0 312,118.0 0.2 85.2 92.2 105.4 106.9 27.2 417.0 1,302.4 1,808.3 2,773.8 3,565.2 544.8 9,995.0 4,396.0 5,968.0 6,785.0 10,175.0 2,315.0 29,639.0 Employment Exports (US $ M) Domestic Sales (PhP M) MSMEs Assisted - Source: DTI 2009 Table 2: OTOP Performance (2004 – 1st Quarter 2009)
  17. 17. Access to financing and markets, and availability of raw materials are the major problems encountered by rural enterprises. Business problems encountered Others Transportation Employment Technical Raw Materials Availability Marketing Financial 0% 20% 40% Fig. 3: Business Problems Encountered 60% 80% 100%
  18. 18. 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% 80% 52% 48% 29% 0% Pricing of products 150% 58% 60% Public market Cooperative Street stall or booth Others* Own shop 10% Wholesale 80% 60% 40% 20% 0% Export products? 97% 42% 40% 100% 50% 20% 3% 0% 0% Yes No Decide ow n* Others Fig. 4: Distribution of Enterprises as to Channels of Distribution and Pricing Strategies
  19. 19. 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 100% 80% 60% 40% 20% 0% 84% Possibilities to create regional brand 80% 74% 60% 40% 13% Yes No 3% No answ er 6% 20% 13% 6% 0% Quite Possible Not so much Difficult No answ er Fig. 5: Perception of the Respondents on the Necessity and Possibility of Creating Regional (OTOP) Brand
  20. 20. 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. Knowledge on OTOP Usefulness of OTOP 70.0% 70.0% 60.0% 60.0% 50.0% 50.0% 40.0% 40.0% 30.0% 30.0% 20.0% 20.0% 10.0% 10.0% 0.0% 0.0% Know very Know well rather well Not so Little much Knowledge Never Heard Very useful Useful Not very useful Not useful at all Fig. 6: Respondents’ Knowledge and Perceived Usefulness of OTOP
  21. 21. 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. Evaluation of OTOP Support Type of support from OTOP program 30 60.0% 25 50.0% 20 40.0% 15 30.0% 10 20.0% 5 0 Series1 10.0% Marke Traini Desig Finan Busin Mana Other ting ng n cial ess geme Supp 30 24 15 10 10 8 1 0.0% Very Satisfied satisfied Average Not Unsatisfied Satisfied Fig. 7: Respondents’ Assessment of OTOP Program Support to MSMEs
  22. 22. 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. Evaluation of OTOP Exhibition 30 25 20 15 10 5 0 Sales Understanding Quality Price setting Knowledge on Others promotion consumers'improvement the needs competitors products Fig. 8: Evaluation of OTOP Exhibitions
  23. 23. 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.
  24. 24. 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”
  25. 25. Case Studies Case 1: Navarro Foods International Case 2: KATAKUS, Inc. Case 3: Carmfood Enterprises
  26. 26. 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 Product development, HACCP, assistance packaging and labeling, financing, trade exhibits Problems Declining supply of crab meat High transport cost Dealing with employment issues
  27. 27. 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 Product development, financing, assistance marketing Problems Need better tools and equipment to improve productivity and product quality; Limited capital; upgrade workers’ skills
  28. 28. 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
  29. 29. Conclusion
  30. 30. 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.
  31. 31. 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.
  32. 32. 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.
  33. 33. 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.
  34. 34. Thank You!

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