Why Develop SMEs?

The advocates of SME development are often asked why they believe SMEs to be the vehicle for national social and economic development. The inquisitive mind will ask the question, “Why SME development when SMEs are only 8 percent of the total number of enterprises in the country? Why not focus on micro enterprises?”

The immediate answer that comes to mind is that this situation shows that most of our micro-enterprises do not develop to become SMEs. Either they are not sustainable and their growth peters out, or they remain a micro-enterprise forever. This is the reason the country does not have many global brands and businesses in the international market place.

The situation calls for efforts in incubating micros to become SMEs, and SMEs to eventually become large enterprises. Clearly, the gap in our development efforts is bringing micro enterprises to the next level of development which is becoming an SME. Hence, the need to focus on SME development starting with the graduating micros.

 By their very nature, SMEs have characteristics that enable them to be catalysts for development. Their growth will pull people up out of poverty and ultimately uplift standards of living. So to clarify the unsettled minds of those who still doubt the wisdom of pursuing the development of an SME sector, we have identified and ascertained, based on our personal experience and on available literature on the subject of SMEs, their characteristics and role in nation building.

SMEs are More Stable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         Even Even as we recognize that most businesses start from being micro, it is our best option that we invest or finance SMEs. First, is that unlike micro-enterprises, SMEs are at a level that is more stable and resilient having passed through the start up stage and having paid the “tuition fees” for beginning enterprises. The entrepreneur running the SME is also more experienced having survived the early years of the enterprise. So it is theoretically less risky for the lender to finance SMEs, it being with more permanence and stability than micro enterprises.

Multiplier Effect

Assisting SMEs has more impact than smaller enterprises. As SMEs grow so do allied businesses along its value chain. For example, in a manufacturing enterprise, from product design to procurement of raw materials, packaging and marketing will have various businesses either in the form of services or material inputs that are benefited by an SME’s growth. As the volume of production grow, so does the levels of contribution of the businesses in the value chain. So in effect, the development of an SME positively contributes to the growth of other SMEs as well.

Sustainable and Alive

A typical SME grows at an average of 10 percent per year. And a really good SME may grow at a faster rate. Regardless of their rate of growth, the fact is SMEs are “alive” and grow. For lenders this is a good thing because they can grow their loan portfolio as SMEs grow. The lender’s relationship with SMEs is sustainable as the business with SMEs grows over the years until they become big enterprises.

Job Creation

Because they grow and have a multiplier effect, they are good job creators. Yes, SMEs actually provide jobs for people within the community they are located. As they grow they create jobs not only within themselves but also in the value chain.

At the macro level, in India for example, recovery in job losses during the recession was led by SMEs as they showed steady growth in job creation, creating about one million jobs per year. Overall, SMEs provides 40 percent of all jobs in India.

In Canada, a developed country, SMEs create about 100,000 jobs annually. In China, SMEs provide 80 percent of jobs. In the Philippines, more than 60 percent of jobs are provided by SMEs. Given that they are major provider of jobs is enough reason to support SME development.

Contributes to Economic Production.

SMEs also contribute significantly to the country’s GDP. In the Philippines value added to GDP is about 37 percent. SMEs in our neighboring countries have value added to GDP which are much higher than those of Philippine SMEs. Japan for instance has more than 50%, China 45.4 %,  South Korea 46.5 %, and Thailand 40 %. The value added from SMEs in the case of the Philippines can still be significantly improved.

Germinate New Industries

Big business especially in developed societies originates from SMEs. And so did precursors of new industries. In Japan which has a number of top global brands started many of these products in business incubation centers as SMEs. In the early 20^th century, even large corporations such as Toyota, Honda, and Sony started out as small backstreet factories.

Historically, manufacturing in its earliest form was carried out by artisans with assistants. These were small workshops usually based at home that did work on special projects. Usually, these artisans form guilds which protected their “industry.” Furthermore before the industrial revolution most manufacturing were located in the rural areas which were household-based. These were technically SMEs, but the term was still unknown then.

The point here is that SMEs have the potential to germinate and bloom into new industries and the revitalization of SMEs can promote competition in the marketplace, creating new industries and becoming the motive force behind economic restructuring.

In more contemporary times, we see garage-based workshops which later became Microsoft, e-bay, Amazon, and spurred the dot.com era. There are numerous other examples of success stories of SMEs becoming big. Here are some of them aside from those already mentioned: Apple, Disney, HP, Amazon, Dell, Starbucks, Mattel, Harley Davidson, e-Bay, and many more.

Can stabilize society (inclusive growth)

Given the benefits of a robust and vibrant economy with a strong SME sector as its backbone, the social and economic life of people will be at par with those of the more developed societies of the world.

A strong SME sector will be able to stabilize developing societies. As providers of jobs, maker of new industries, contributors to economic growth, stable, growing and having the ability to spread wealth among the people, SMEs by themselves are able to stabilize societies.

For example, let’s take a local economy in the interior towns of Bohol province that were a bastion of insurgency during bad times (financial crisis of late 90s), were transformed into peaceful and progressive communities when enterprises came back and a vibrant SME sector was once again established. Because SMEs are purveyors of growth and development, the insurgency left the place because people did not need one to recover economically.

Engineered Bamboo: Environment Friendly Solution to our Housing Needs

A new product is being developed that is made of bamboo, which can replace the construction materials made of hard lumber from our forests. The product is called engineered bamboo. And as its name implies there is a process done to the typical bamboo poles to turn them into construction materials that are as durable and long lasting as lumber from our forests.

As part of my work of financing SMEs with promising and profitable products and services, I have come across several proponents looking for equity financing for their engineered bamboo projects.

From my initial appraisal of the product, I would say that it looks exciting and if proven successful can become a very profitable domestic and export industry of the country.

First, bamboo is not a tree, it is a grass. Cutting them will not present any environmental problems compared to cutting trees in the forest.  Second, bamboo can be cultured and can grow almost anywhere in the Philippines.  Third, it is a hardy and perennial plant and can be established easily and replenish itself in a shorter time than trees. You can harvest poles from a short time of 3 to 6 year cycle.

The technology used to produce engineered bamboo is simple and a combination of practical physics and chemistry. First, large bamboo poles are shredded into strips and configured according to the size and shape ( dimension of the lumber material) required or desired by the producer. Once the matrix for the required dimension is built or configured, low viscosity (VOC) resin is added into the configured bamboo strips and placed in a hydraulic press which compresses the bamboo at several thousand of pounds of force.

The compressed bamboo is allowed to stay that way until the resin is completely dry and then removed from being pressed.  The resulting product is a dense block of bamboo that is nearly indestructible.

It is subsequently milled and sanded into what is popularly known as bamboo lumber or engineered bamboo.

The block of compressed bamboo could be made into different dimensions as required by the construction industry. It could be made into ply boards, posts, and other wooden construction material. You can even build an entire house from engineered bamboo.

Already, bamboo is a commodity that is considered a notable and significant plant in the Southeast Asia region, being popular as raw material for homes, handicrafts, furniture, and food; the young shoots are harvested and used as a vegetable in many areas of the region. But with engineered bamboo, we now have a material that can substitute for hard lumber, and can meet man’s appetite and demand for wood.

What about its durability and strength? And questions regarding its resistance to wood louse and other insects that dig and gnaw on bamboo and other wood? 

According to those who have experience using engineered bamboo, they claim that it is hard as Oak, and is actually resistant to insects that feed on wood. As to its resistance to insects, fully matured bamboo is not palatable to the insects, it’s the young and immature poles that are attacked and serves as insect food. So the key to its durability is to use only matured bamboo poles when manufacturing engineered bamboo.

A bamboo blog site http://www.bamboogrove.com/blog /has these to say about bamboo as construction material:

·        It takes an acre of hardwood forest to build an average house; it takes only a quarter of an acre to build the same house;

·        It will take 40 years to regenerate the hardwood forest; it takes only a year for an acre of a  bamboo forest to regenerate;

·        Ounce for ounce, bamboo is stronger than wood, brick, or concrete;

·        It is a fast growing species---can grow a yard per day;

·        Highest tensile strength than most grades of steel (withstanding 52,000 lbs. of pressure PSI and weight to strength ratio surpassing graphite)

·        A house made of bamboo is earthquake proof.

One anecdote I read extolling the benefits of using engineered bamboo is about a demolition expert who was asked about which house was most difficult to demolish? Not steel, not concrete, not hard lumber----yes, you guessed it, a bamboo house.

In the Philippines, the countryside is abuzz about engineered bamboo. It has been identified by the country’s Department of Trade and Industry as one of its products under its OTOP (One Town; One Product Program), and some regions are already laying the groundwork for its development as an industry. As I write this article, bamboo plantations are being established. Engineered bamboo projects can be found in Iloilo, Nueva Ecija, Cordillera, Abra, and regions where bamboos are found to be part of the natural landscape.

It is about time, the country develop this natural resource that could prove to be the savior of our forests. As it develops, I see a reduction in the cost of engineered bamboo and housing will be more affordable, even for the poor.