The Philippine MSME sector is a critical driver for the country's economic growth. The sector serves not only as potential supplier and subcontractor to large enterprises and exporters but is also a part of the support system for logistics services.
The MSME sector accounted for 99.6 percent of total establishments in the country, and contributed 61.2 percent of the country's total employment and 35.7 percent of total value-added. However, the growth of the MSME sector has not been vigorous enough to propel the economy (Table 3.10).
Table 3.10: Micro, Small and Medium Enterprise Profile
| Total | Micro | Small | Medium | Large | MSMEs |
2008 Number of Enterprises | 761,409 | 697,077 | 58,292 | 3,067 | 2,973 | 758,436 |
% Distribution |
| 91.6 | 7.7 | 0.4 | 0.4 | 99.6 |
2008 Employment | 554,4590 | 1,663,382 | 1,314,065 | 418,058 | 2,149,085 | 3,395,505 |
% Distribution |
| 30.0 | 23.7 | 7.5 | 38.8 | 61.2 |
2006 Value Added (in million pesos) | 2,108,546 | 103,918 | 431,340 | 216,685 | 1,356,603 | 751,943 |
% Distribution | 100 | 4.9 | 20.5 | 10.3 | 64.3 | 35.7 |
2006 Value added per worker (in pesos) | 380,289 | 62,474 | 328,248 | 518,313 | 631,247 | 221,452 |
% of large enterprises |
| 9.9 | 52.0 | 82.1 |
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Source: National Statistics Office
The size-distribution of firms has changed little in the past two decades, with the proportion accounted for by medium sized enterprises remaining small. As a result, the country's industry structure is often characterized by a missing or hollowed middle.
The performance of MSMEs was constrained by various factors. These include high cost of doing business, lack of access to finance and market information, and low productivity and competitiveness. Poor business conditions are a greater challenge for MSMEs given their limited resources. Many are unable to qualify for bank loans for lack of the necessary track record and collateral. The lack of credit information also makes it more difficult for banks to determine MSMEs' creditworthiness. With limited management and financial capabilities, many MSMEs are unable to respond dynamically to the domestic and export markets.
MSMEs have a low ability to meet the threat of local and global competition because of lack of information needed for market access and business environment; failure to attain scale economies needed to produce quality goods and services; and the sector's laid-back approach to seeking new markets and responding to market needs.
The low productivity of MSMEs can be attributed to the sector's lack of access to new technology, weak technological capabilities, and its failure to engage in innovation and research and development (R&D) activities. The result is wasteful duplication and non-optimal use of limited resources. Furthermore, lack of awareness for science and technology (S&T) and scarcity of S&T human resources are limits to production optimization.
While the value-system of workers and employees undoubtedly affects the total productivity of firms, low productivity in the industry and services sectors may also be due to their inflexible organizational set-up and processes. Firms cannot easily adjust to the fast-changing needs and demands of their clients, consequently affecting their level of productivity. In addition, the country's domestic manufacturing is not strongly linked with its exports manufacturing compared to its neighboring countries.