Many small Philippine firms not keen in innovation

download.jpg AIM logodownload.jpg Konrad Adenauer

Many of the small and medium Philippine companies are not keen in innovating which is crucial to their growth and competitiveness.

A survey conducted by the Asian Institute of Management (AIM) and the Konrad-Adenauer-Stiftung Philippines revealed that small and medium enterprises  across Metro Manila and Calabarzon (Cavite, Laguna, Batangas, Rizal, and Quezon) spent 27 percent of their total expenditure for innovation-related activities, while more than half spent only 20 percent or less.

Results indicated that while majority of SMEs reported engaging in one or more types of innovation in the last two years, only a relatively smaller proportion introduced a new product or service to the company or market in the past two years.

For those who did not innovate, majority said they did not have plans to innovate in the future. The top three reasons for not innovating were “the owners are content with the current state of business operation,” “market is not growing,” and “too risky.”

AIM in its policy note said the survey outcome showed that lack of access to information on markets and of existing government support facilities hampers SME innovation.

“Since SMEs face distinct challenges with access to resources, government support facilities are crucial to test their innovative ideas. Without this information, firms will not be able to target the appropriate innovation for their business to scale up and be competitive,” it said.

“Although, innovation can drive firms to expand and export, the survey results show that only 5 out of all the respondents were able to export in the last two years,” the study said.

And despite availability of government shared-service facilities and funding for SME innovation activities, only a few firms avail of these. In the survey, only 10 out of 480 respondents said they were able to access a government program.

“Indeed, awareness-raising on government support facilities and funding is crucial for SME innovation. This also includes information on trade fairs for exchanges of market information.”

Apart from awareness-raising, an SME needs assessment is crucial for government programs. While there are existing government support facilities, the low participation rate can also be linked to government’s lack of information on what drives SMEs to innovate.

Review of existing government support programs and facilities can offer a more targeted package for SME innovation, said the AIM paper.

Although there are government programs to spur SME innovations, such as the Department of Science and Technology’s (DOST) Small Enterprise Technology and Upgrading Program (SETUP) and Technology Incubation for Commercialization Program, access to technology is one of the challenges faced by SMEs, where despite availability, technologies are not widely used by MSMEs to increase their productivity and competitive advantage.

In the survey, 47.3% of those who did not innovate also identified lack or difficulty of access to technology as a bigger constraint for exporting.

In the survey, the top reason for not innovating is linked to the entrepreneurial mindset that the “owner is content with the current state of business operation.” This is also the overall top reason for not exporting and the second top reason for not expanding. Another top reason is the perception that innovation and exporting are too risky.

“Since innovation is closely linked with expansion and exporting, promoting the motivational factors of entrepreneurs is crucial for SME competitiveness,” the report added.