The Economic and Research Institute for ASEAN and East Asia (ERIA) has urged small and medium enterprises (SMEs) to improve their business strategies and innovation activities in order to benefit from the internatonal product networks (IPN).
Dr. Dionisius Narjoko of ERIA told a recent forum organized by the Philippine Instittute of Development Studies that innovative SMEs have better chance to participate in IPNs, noting that promoting innovation is crucial considering these networks and sustainable development.
Narjoko underscored the importance of integrating these companies, especially the labor-intensive ones, with IPNs in achieving the ASEAN SME development and inclusive growth.
“SMEs in IPNs are less financially constrained, and have better access to financial sources. They get lower interest rate on loans; they have better cash flow,” he noted.
IPNs would also lead to the successful development of clusters, attract more foreign direct investments that can create more technology spillovers, and boost a firm’s technological and innovative capability.
But while these SMEs can benefit more from these networks, Narjoko expressed concern about the significant threat of survival.Narjoko said building technological capability is one way to boost a firm’s competitiveness. To boost SMEs in ASEAN, there is also a need to strengthen the regional institutional arrangements for supporting SMEs.
The Philippine Exporters Confederation (Philexport) has raised a concern of a government decision to regulate labor contracting and subcontracting.
“We laud the objectives and benefits of regulating contractors to curb fly-by-night operators and protect the principals,” said Philexport president Sergio R. Ortiz-Luis, Jr. in a letter to DOLE Sec. Rosalinda Baldoz.
However, a main harmful issue raised by Philexport is the prohibitive licensing and registration fee of P25,000 to legalize the operations of labor contractors and subcontractors of parts of a bigger company’s production system.
The fee should be reduced to a more reasonable P1,000 since most members of PHILEXPORT are micro, small and medium enterprises that already face so many obstacles to becoming more competitive, Ortiz-Luis argued.
The issue on labor sub-contracting became a national controversy when many contractors from security guard agencies, providers of messengerial and janitorial services and at least one retail chain were found to have violated Philippine labor laws.
The issue has become too hot, several congressmen and senators have filed bills in both houses of Congress seeking to criminalize labor-only sub-contracting.
Subcontracting practice is only common in the construction business before the globalization of trade set in during the early nineties. It has grown to become a common practice worldwide and is now known as “outsourcing” of parts or components of a product or a company’s non-core service like customer relations or sales. In the country, it created the business process outsourcing industry.
In the exporting segment of the domestic economy, outsourcing has become a competitive weapon practiced by the giants and smaller exporters from ship-builders to handicrafts and furniture-makers. To meet big orders on time, the bigger exporters have enlisted smaller enterprises to manufacture parts. Example is the leg of a table which is later assembled into a complete product.
Meanwhile, approved investments of foreign and Filipino nationals reached P202.8 billion in the second quarter of 2012, increasing by 27.2 percent from last year’s P159.4 billion.
Youngsters who comprised about 40 to 50 percent of Indian population are beginning to look for new products when they try out.
Pareek said half of the middle class estimated at 600 million consists of educated young professionals who have a lot of earning power. He also encouraged Filipino exporters to participate in trade fairs in India.
Pareek said the Philippine embassy in India, which has offices in New Delhi, Mumbai and Kolkata, also promotes and facilitates trade between the two countries.