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.

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. Presentation outline
Introduction
Presentation of Findings
Cases
Conclusions

3. Introduction
Policy Framework
OTOP-Philippines Implementing Structure

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. 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. 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. 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. 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. 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. OTOP-Ph program elements
• Business counseling
• Skills and
entrepreneurial
training
• Product design and
development
• Appropriate
technology
• Marketing
• Financing

11. Presentation of Findings
Background of enterprises
Profile of entrepreneurs
Business prospects
Marketing
General Image of OTOP-Philippines

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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. Case Studies
Case 1: Navarro Foods International
Case 2: KATAKUS, Inc.
Case 3: Carmfood Enterprises

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. 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. 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. Conclusion

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. 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. 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. 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. Thank You!