CRB-Bulacan Experience: Micro-Enterprises are Good Business

Micro-entrepreneurs given the proper opportunities, the right resources, training, and confidence, are after all good investments.

This was the opinion given by Nestor Custodio, General Manager, as he described micro entrepreneurs as the reason the Cooperative Rural Bank of Bulacan (CRB of Bulacan) went into microfinance operations a decade ago.

While riskier than traditional banking, it was with great optimism that the CRB of Bulacan ventured into micro finance operations catering to the needs of the small and low income clients which are largely unserved by the formal banking sector.

It was the conviction and belief that this unserved market is a lucrative business opportunity that encouraged the bank to go into micro finance.

Today, that conviction has not failed expectations. With more than a thousand depositors and members, it has grown to an asset base of P 1.8 Billion, and a multi-million micro finance loan portfolio that continues to cater to the needs of the pre bankable entrepreneurs despite the challenges of a developing economy.

The key to this success according to GM Custodio is the availability and sustainability of funds.

“Our experience taught us that one of the major reasons why our micro finance program continues to be successful is because funds are always readily available to finance the growing businesses of our micro finance clients.

“SBGFC was there when we needed the financing to meet the demands of our clients. Through an Omnibus Credit line, SB Corp. was able to respond quickly whenever we needed the funds to sustain the growing business of our micro entrepreneur clients, relates Custodio.

“The continued training of our staff and our clients is likewise a very important aspect in microfinance.  Our being sensitive and adaptable to changing market trends that resulted to a high rate of client retention is also one important success factor. Our program is able to adjust and develop flexibility to serve the needs of our clients,” he added.

Indeed, the CRB of Bulacan has contributed in a significant way in uplifting the standards of living of its beneficiaries. In its own way, it has touched the lives of the poor through the provision of “affordable, accessible, and suitable” banking services not usually provided by other banks.

“The bank has created job opportunities in the communities it serves. Furthermore, since most of our clients are women, we have seen their transformation into more responsible, assertive and confident members of society,” concludes Custodio.


Postcript:

The CRBB has been closed by the Philippine Deposit Insurance Corporation last May 23, 2013. A success story for cooperative Rural Banks, the CRB of Bulacan is an example of how a successful financial institution can be demolished by mismanagement and poor governance. We are saddened by its closure, but remain positive that lessons can be learned from its debacle. This blogger will unravel the reasons for its failure and post them so that all can learn from the CRBB story.

Businesses Filipinos should be into---those with competitive advantage

Despite its human, natural and agricultural resources, the Philippines cannot boast of global brands which can compete in the world’s marketplace except for one or two which are known internationally --- San Miguel beer, and perhaps Jollibee.


Our country has been known to be a major producer in the 1900s of agricultural products and ranked among the top in the world. We had abaca, then known as Manila hemp, sugarcane, coconut in the form of copra, and lumber from our then abundant forest resources. 


But the competition, technology and the unsustainable exploitation of these resources enabled the world’s markets to find cheaper and better substitutes. These commodities eventually lost their appeal and were overtaken by other commodities far better and cheaper from other countries in the export market.

It will be noted that our top exports then were in the form of raw materials or semi-processed produce which had little value added. Contrast this to the other economies in the world that developed new technology to produce finished products which gave them the competitive advantage.
Our exports then lost, or did not have, competitive advantage so other countries outpaced and outgrew them in the market.

Today, the competition to sell in international markets is as intense and is more difficult. But competitive advantage remains to be a necessary ingredient for any successful entrepreneur to break into and maintain a strong foothold in the export market.

Yes, if you cannot compete well, you are doomed to failure especially in an environment of high risk and constant and fast paced changes. An understanding therefore of the concept of competitive advantage will help the entrepreneur focus on what is important and to build on a business with innate and developed competitive advantages.

As defined by Michael Porter, Harvard University Professor and leading authority in competitive strategy, competitive advantage is the position the firm occupies against its competitors in terms of a superior product and service, and cost leadership.

According to Porter, this position of sustainable competitive advantage is created through cost leadership, differentiation or focus. Cost advantage occurs when a firm delivers the same services as its competitors but at a lower cost. Differentiation advantage occurs when a firm delivers greater services for the same price of its competitors. They are collectively known as positional advantages because they denote the firm's position in its industry as a leader in either superior services or cost.

To further simplify the definition, your business has competitive advantage when you are able to do something different than your competitors in such a way as to make it difficult to imitate. When your ability as a business to create value added products for your customers cannot be duplicated or imitated by your competitors, then you have competitive advantage.

This means that the higher the value delivered to your customers and the lower the cost it takes to produce that value, the stronger the firm’s market position.

However, it is difficult to sustain competitive advantage because the competition will always try to copy your technology and strategy, and steal your customers from you. To be sustainable, the entrepreneur must do two things: set an objective to attain superior market position through value added products and services and put in place a strong defense to protect the market position.

Value added products and services can be developed by using firm-specific resources that cannot be easily imitated or acquired. Examples of these resources are: patents, trademarks, proprietary rights to technology, reputation, customer base and brand equity.

Another valuable input to value added products and services are the capabilities of the firm in the way it does its work. An example of a capability is the ability to bring a product to market faster than competitors. Or the ability to create unique design concepts. Such capabilities are embedded in the routines of the organization and are not easily documented as procedures and thus are difficult for competitors to replicate.

Taken together, resources and capabilities make up the firm’s distinctive competencies. These competencies enable innovation, efficiency, quality, and customer responsiveness, all of which can be leveraged to create a cost advantage or a differentiation advantage.

Knowing all these, we go back to the most important question, what is the competitive advantage we need to develop as a country to create competitive global brands?

For the Filipino entrepreneur this is an important point to ponder. Indeed knowing one’s competitive advantage will increase his chances of success in competing globally. His efforts would be better used if focused on an enterprise with inherent competitive advantages.

Venturing a conjecture at this point, as a country consisting of numerous tropical islands, populated with a diverse species of flora and fauna, with a climate making possible all-year-round agriculture, and with a robust young and literate population, our best bet would be in agriculture related enterprises specifically agri-businesses, aquamarine, biotechnology, pharmaceuticals, and in the services related enterprises such as Business Process Outsourcing (BPOs), Information Technology, Medical and Entertainment services.

In tandem with these resources, SMEs must develop their capabilities so that taken together (resources + capabilities) they will have competencies that would be difficult to copy.

Once the Filipino entrepreneur consciously identifies and exploits his competitive advantages, then we will see more Philippine-made products and services competing in global markets.

Seakid Crispy Snacks: Gutsy Move Saved the Future

“He conquers who endures” --- Persius

It was an ordinary day by most respects, but for Elizabeth Toscano, owner and general manager of Toscano-Soriano Trading, this was a day she hopes would change the course of her business. She was attending the National Trade Fair organized by the Department of Trade and Industry that summer day of March, 2003, and she has decided that whatever happens today she will introduce her product to then Secretary Mar Roxas and present her needs and get some kind of assistance to expand her business.

So when the opportunity presented itself, with much bravado, she boldly and with great pride had her products tasted by the Secretary who was then with the Small Business Corporation Chairperson, Zorayda Amelia C. Alonzo and some officers of the DTI. It was an instant hit. Because of its distinctive taste and crispiness, the taste test paved the way for the product to be a bestseller in the trade fair. Easily, the product, sold under the brand name Seakid, sold all its stocks with a reported average sale of P 25,000 a day.

Toscano started her business in 1993 as a micro enterprise, packaging and trading ordinary dried anchovies(dilis), squid(pusit), and peanuts(mani) from Divisoria market. Realizing the need to put added value to her products, she started to innovate and introduce new ways of cooking and packaging the dried fish such as dilis, tuyo, sasap, and dried squid (pusit). Her creative ways with the dried fish and squid paid dividends as exporters and consolidators considered Seakid to be of export quality gaining acceptance in the domestic and foreign markets.

Seakid products did not go unrecognized. In December 5, 2001, they were awarded  by PHILFOODEX, INC. the Most Promising Product Award, which is a testament to the good quality of Seakid products. The rest is history, the recognition paved the way for its membership in industry associations such as the Philippine Food Processors and Exporters Organization Inc., the Philippine Exporters Confederation, Inc., and the Integrated Food Manufacturers’ Association of the Philippines for Productivity.

The  determination and hardwork that Toscano put into the business, and her bravado that day at the national Trade Fair opened the doors for the her to get the financing support she badly needed to expand the business. With the Small Business Corporation’s  GUIDE program, Toscano was able to get a P 3.4 million loan in 2003 to finance the expansion of her business as follows: renovation of the office and factory, acquisition of equipment, establishment of cart outlets and additional working capital.

The financing from Small Business Corporation brought the business from a backyard type of operation to a commercial one. Since then, Seakid products have gained inroads both in the local and international markets. Moreover, the initial loan became a catalyst to move Seakid products to higher level of production and marketing.

Since then, Toscano-Soriano Trading has not looked back and continues to grow in the export market. Subsequent working capital loans followed which saw its products gaining international acceptance.

The story of Seakid products is always appreciated for its commercial success, but it is more admirable when we know that its humble beginnings were spurred by a couple that did not possess the high education associated with material and business success.

They were high school graduates who dared to dream, and had the determination and sacrifice needed to succeed. Today, whatever success Seakid products have is a testament to the courage, will,  and determination of  ordinary people who did extraordinary work on a simple, homegrown natural resource that is now going places in the world market.

Investment in Anti-Dengue Enterprise

Small Business Corporation’s (SBC) venture capital program for SMEs invested P3.5 million in an enterprise producing personal care products such as lotions, and mosquito repellent sprays including decorative candles made from citronella oil.

Citronella oil is popular as a 'natural' insect repellent. Its mosquito repellent qualities have been verified by research, including effectiveness in repelling Aedes aegypti (dengue fever mosquito).

Research also indicates that citronella oil is an effective repellent for body louse and head louse.

The enterprise was financed under SBC’s SME-VIP (Venture Capital and Business Incubation Program) which identifies, selects, nurtures, and develops business ideas and early stage/start-up enterprises into viable and competitive businesses. 

 The investee corporation, initially started as Mag Creative Crafts Company created in 2005 following its successful entry of hand-made decorative, scented and everyday candles to retail trade channels. In March 30, 2007, they dropped the name Mag Creative Crafts Company and changed it to MAG Starlight Industries Inc.

The investee corporation is majority owned by Mary Ann Gendrala, a 48 year old businesswoman who is a graduate of De La Salle University with a degree of BS in Commerce Major in Marketing Management. She also has a master's degree in Business Administration from the Ateneo Graduate School of Business.

A minimum general objective for the SME-VIP is to produce successful firms that will leave the program financially sustainable and standing on its own.

SBC has already invested in five SMEs over five years of its existence as a program for a total invested funds of almost P15.0 million.

SBC has allocated a P 50 million fund as seed fund for the equity financing/venture capital program.

She focuses on sales and marketing while overlooking the production aspect of the company.

The SBC investment in the enterprise is 48% of common shares of the P 8 million total capitalization. Gendrala and her nominees own the balance of the common shares for a 52 % ownership.
The enterprise will have a payback period of about 2-3 years and an internal rate of return (IRR) of  21%

The demand and surge in sales for mosquito repellent products had increased tremendously over the last decade due to the life threatening diseases brought by mosquito bites, dengue and malaria. Also, as consumers are becoming more aware of health and environmental issues, products with "natural" or "organic" ingredients for home and personal use are increasing at breakneck speed.

The company was formed several years ago and initially started as a manufacturer of hand-made decorative, scented and everyday candles. These products made its way to retail trade channels catering to middle and high-end markets.

Aside from helping consumers, the enterprise also benefits some 36 families of farmers in the upland areas of Camarines Sur where Gendrala sources her citronella oil. These farmers planted and grew citronella grass and extracted the oil using technology provided by the Department of Science and Technology and supervised by PFEC (Philippine Federation for Environmental Concern) an NGO operating in the province helping farmers acquire a sustainable source of livelihood.

Citronella candles as mosquito repellent was introduced 4 years ago and captured a positive response and continued patronage from consumers. They have seen the opportunity to expand their product lines in the home and body care line and they have identified that there is a strong and great potential along the mosquito repellent category substantiated by consumers' positive response and increasing demand for citronella candles, thus the insect mosquito repellent sprays and lotion were born using pure and natural citronella oil as active ingredient.

The US Environmental Protection Agency  states that citronella oil has little or no toxicity when used as a topical insect repellent, with no reports of adverse effects of concern over a 60 year period. Because some products are applied to human skin, EPA requires proper precautionary labeling to help assure safe use. If used according to label instructions in the US, citronella is not expected to pose health risks to people, including children and other sensitive populations. The US Food & Drug Administration consider citronella oil as generally recognized as safe.

How to Reinvent your Business?

In today’s competitive business world, it is likely your edge over business rivals become smaller everyday, and before you know it, it is gone in the blink of an eye.

What does this mean?

 It simply means that your products and services have been copied by the competition. And that they have put one over you, a better and more customer- oriented business model.

A product or a service’s life usually lasts for months, or years, even decades, or until the competition finds out your business secrets, copies them, and sells an improved version that puts you out of the competition, or worse, out of business.

Warning Signs

There are tell-tale signs of a dying product or service.

Here are some of them: 1.) costs become counter-optimal (additional cost does not yield more sales or profits), 2.) sales volume declines or stabilizes, prices and profitability diminish, and 3.) profit becomes more a challenge of production/distribution efficiency (cost cutting) than increased sales.

These are warnings. And when you observe these signs, you better get your act together and review your business to avert its death.

Yes, your business could die if you don’t heed the warnings.

First, this means that your business model, or your product or service has lost its competitive advantage. It cannot compete anymore and is slowly losing its leading position to the other players in the business. Second, the product or service is already at the end of its product life cycle, or the industry you are in is already in the sunset of its life.

Whatever the situation, don’t lose hope because all is not lost.  You can reinvent your business.

According to experts, reinventing your business means innovating on the business model you employ to create value and generate profits. A business model describes the underlying principles of how an enterprise creates and delivers value--- economic, social, or other forms of value.

When a business is established, it either explicitly or implicitly uses a particular business model that describes the design or architecture of the value creation, delivery, and capture mechanisms employed by the business enterprise. The essence of a business model is that it defines the manner by which the business enterprise delivers value to customers, entices customers to pay for value, and converts those payments to profit: it thus reflects management’s hypothesis about what customers want, how they want it, and how an enterprise can organize to best meet those needs, get paid for doing so, and make a profit.

Catalysts

Reinventing your business may be undertaken using various forms of catalysts. Prominent among those used by experts to reinvigorate a dying enterprise, or jump start a fledgling start up are the following: innovation, branding, technology and corporate culture.

While each enterprise is unique in itself, the use of one or any combination of the stated catalysts will be able to stimulate and renew the growth of a business.

Let’s define and discuss each catalyst on how it delivers a fresh kind of enthusiasm and interest in the business.

Creating Something New

Innovation is when you create something new to spark renewed interest in your product. This term may mean different things to different people, but simply put, innovation means something entirely new. In the context of enterprise management, it is said that when a business stops innovating, it stops growing. 

Incongruously, when business is excellent, entrepreneurs forget about innovating because there is no need for it---not realizing that doing so may in the long term spell death for the enterprise.

Innovation can come in a new product, or a new way of selling , or still, a new method of producing the product that lowers price. 

But according to the Beveridge Consulting Group in the person of its CEO Dirk Beveridge of Illinois, USA, it is not just these things that provide the competitive advantage.

“The competitive advantage must be their willingness and desire to better understand the needs, desires, wants, opportunities and problems of their customers better than anyone else,” said Beveridge.

“And they must have the skills to provide value-added services. That is the competitive advantage---not the product, not the price.” It is what Beveridge calls product orientation vs. customer focus.

Customers are more difficult to satisfy nowadays. 

So if you want your innovation to be successful, then it must satisfy the customers’ needs first; product improvement or innovation comes later as a result of being able to determine what the customer actually needs or wants.

Consistent and Focused Approach

Second catalyst is branding, wherein the brand acquires a new and distinct personality from the old one.

As defined by experts, a brand can take many forms, including a name, sign, symbol, color combination or slogan. Historically, the word brand began simply as a way to tell one person's cattle from another by means of a hot iron stamp.

Today, a legally protected brand name is called a trademark. The word brand has continued to evolve to encompass identity - it affects the personality of a product, company, or service.

It is assumed that brand marketing can effectively change the perception of customers of the products and services of an enterprise, and can consequently enhance the value of the product or service. For the entrepreneur using branding as catalyst, it is important that he is able to communicate exactly and accurately what the business does exceptionally well for the customers. This should be done in a distinct and consistent manner in all forms of communication media including advertisements, the internet and events and trade shows.

The new branding strategy will do for the new business the following:

•                  Position the product or the service in a new light considering customer needs and        preferences; 
•                 Repackage the product or service to effectively communicate its value added features; and

•                 Expand the market for the product or service.

A word of caution for the entrepreneur, branding is not as simple as it may seem. To be successful, one must invest resources in research to find out what needs to be improved in the product or service, in the way it is communicated and delivered to customers, or in the target customers themselves. 

One must have a customer-focused approach to come up with a new brand and be able to communicate this effectively.

Some tips from known practitioners of the branding strategy: “When using this strategy, according to Charles Conn, Managing Director for the Boston-based Encompass Communication, a design and brand marketing firm, “branding becomes a matter of consistent repetition of the presentation of the company name or product.”

“Without consistency, the target audience may view the company or brand as confused, resulting in a lack of confidence and loyalty to the brand or service,” he explains.

Dan Droz ,  President of Droz and Associates, a branding and design management firm sums it up, “Reinvention through branding can work for any company that understands both its customers’needs and distinctive positioning that allows the company to fulfill those needs.

Leveling the Playing Field

Another way of  reinventing your business in through the use of new technology.      Technology is the process by which humans modify nature to meet their needs and wants. Most people, however, think of technology in terms of its artifacts: computers and software, aircraft, pesticides, water-treatment plants, birth-control pills, and microwave ovens, to name a few. But technology is more than these tangible products.

Technology includes allof the infrastructure necessary for the design, manufacture, operation, and repair of technological artifacts, from corporate headquarters and engineering schools to manufacturing plants and maintenance facilities. The knowledge and processes used to create and to operate technological artifacts -- engineering know-how, manufacturing expertise, and various technical skills -- are equally important part of technology.

In today’s business world, the fastest and most efficient way of jumpstarting your business is through the technology of the internet, or the Web.

Two points of view emerge in the use of the Web. First, it levels the playing field for entrepreneurs and allows enterprises to reinvent themselves to compete in a global scale. Second, the Web forces enterprises to remodel themselves or be left behind as technology continues to improve. Businesses in the internet are compelled to create its distinctive personality to attract customers, encourage brand loyalty because barriers to entry of competitors in the Web is so low.

In a way, the Web allows the enterprise to expand its market to the optimum it can, given the billions of people subscribed to the internet. Its limitations however, is itself given the limited resources of the SME. However, the Web leverages these resources to the maximum enabling the SME to double its market exposure in the least possible time and effort.

The Web also contributes to the efficiency of the business especially in the selling and collection of payments. “Folks go online, do their purchase research, and complete the transaction in a jiffy either onsite (going to the store and purchasing the selected item) or electronically buying it through the internet and just wait for delivery. This level of efficiency can double sales by as much as threefold based on the experience of many Web users.

Changing People’s Culture

Finally, you may reinvent your business by focusing your attention on your greatest asset---your people. This is usually done by a strong leadership in the organization that can drive a corporate culture that says to the people: either you grow; or you go!

In short, it will require a change in your organization’s mind set.

Business culture is a blend of principles, ethics, attitudes, way of life, things forbidden and prohibited, symbols, traditions and folklore all organizations develop over time. You may not think about it, but your business has its own culture.

Whether formally written as a mission statement, or merely spoken and understood, culture governs the way owners and employees think, feel and act.

If you're not happy with your current culture, there are things you can do to change it now.

Look for a symbol, story, ritual or some tool you could use to bring out the values and practices you want for your organization.

Your cultural tool might be a new corporate logo symbolizing your company's personality. Or you could choose a story to embody your approach and make it part of your culture.

If you can't find a tool, make one. For example, you can turn an admired former employee into a symbol by giving an award named after that individual, complete with ritual ceremony.

In the Philippines, we can easily think of a few examples of reinventing one’s business through a change or adoption of a new culture.

For example, a popular pizza chain “Hates Late” and challenges customers to prove them wrong by committing to deliver in a certain number of minutes.  This establishes a norm of behavior among employees to be always on time.

Then there is a drug store that says, “Gising 24 Oras” (Awake, 24 Hours) showing its culture of always being there to provide medicines to Filipinos in a timely and efficient manner with the customers’ convenience utmost in its work ethic.

Another example is an academic institution known for its intellectual snootiness changed its culture by a policy of democratization of its admission policies, where the rich students subsidized the poor. Now, it is populated by the well off as well as the poor students, and is known for its democratic ideals and principles.

Reinventing your business is not easy. It takes a lot of creativity and hard work. But given all things needed to be successful, one thing is crucial: “you will need to obtain a shared commitment to change from all your enterprise’s stakeholders---employees and officers alike, and a readiness from them to redefine the business.” In all likelihood, your business will be competitive and grow in the future.