Small- and Micro-Business Development
In The Philippines
A
Study of Economic Survival in the Midst of Globalization
Initiated
and Presented by Humphreys College and Dr. R. Chabot
The Philippines Today
Considered a part of Southeast
Asia, the Philippines is a developing island nation with close ties to the
United States. A democratic republic and tied to an free market economy,
Filipinos hope to share in all that is promised by economic globalization. Yet,
with a 10% unemployment rate and more than 40% of the labor force involved in
the agricultural sector, locals and foreign investors alike wonder about the
future of the Philippine economy. Most reports on the Philippines sound
desperate and discouraging, focusing on terrorists in the South or slowed
industrial production in the last quarter. Yet, there is far more to the
Philippine economy and its people than rice and textiles. My research into
small business activity in the spring of 2002 (with some follow-up interviews
in 2007) shows another side of the Philippines, one that gives a positive
direction for government and the private banking sector to look towards for a
stable and robust Philippine economy. The following photos and comments are
just an introduction to opening a small shop in the Philippines. For more
information on my research and other areas of work, go to my main web-page at /faculty/rchabot or you can contact me
at rchabot@humphreys.edu. Mabuhay!
Adam Smith and the Philippines
Many
generalizations about the Philippines fluctuate between terrorists and rice
terraces. The latter view has some basis in fact given that almost half of the
labor force is involved in what is termed the agricultural sector. But a large
percentage of the population has more than an elementary school education and
can speak English as a second or third language. College is a common goal for
all school children and almost half of the labor force holds jobs in the
private industrial sector or government services. Unfortunately, many college
educated technicians in the private or public sector earn less than what they
must pay in rent. It is not uncommon for a college professor to hawk kitchen
wares to her students or for a computer programmer to sell sunglasses on the
street after work. The formal job is for status and personal interest while the
sideline job actually feeds one's family. Small, family based, often
under-the-table activities make up a large though often undocumented activity
Filipinos depend upon for obtaining services and making money. The more than
one hundred personal interviews I had with small business owners in and around
the Manila area provide information on the strengths and worries of this vital
part of the modern Philippine Economy.
Methodology
Small- and
micro-businesses are as overwhelming a part of modern life in the Philippines
as Jeepneys and mangoes. Though most Filipinos speak some conversational
English, my questionnaire about business practices had been translated into Tagalog
and I was accompanied by a translator, Arnel Santiago, who is himself a small
businessman, raising and selling duck eggs. Since the ducks did most of the
work, Arnel was happy to walk with me around parts of Bulacan and Quezon City
to question whomever was willing to talk to us. Our inquiries focused on
methods of capital acquisition to start the business, maintain product
availability, and pay debts. Arnel was invaluable in convincing owners that I
was a harmless American academic and not a venture capitalist or part of the
Bureau of Internal Revenue. We tried to get as varied a group of businesses as
we could, but our sampling was certainly not random. Many of the businesses
were looked after by a clerk or relative, and many of the owners were too busy
to sit down and talk at length. Overall, I am pleased at the number of business
owners who did give of themselves and share their experiences. Many thanks to
all of them.
Santa Maria Township
What used to be a
small, quiet little town far from the madness of Manila has become a busy
bedroom community for the Manila area. Jeepneys roam its compact streets while
businesses compete with those down the road and in the capital. In this photo
you can see jeepneys and tricycles, both important forms of public
transportation and avenues of investment for small business entrepreneurs.
Notice the pawnship, a front for a local lender of quick capital for small
businesses. While these shops all have the front and upkeep costs of a stable
business, many others down the street sell similar items (clothing, chips,
toys, shoes, etc.) on the sidewalk or in small, temporary wooden structures.
What keeps the more expensive storefronts alive is trust by the local populace
and developing a relationship with customers. These "suki" may
go to the same business for generations out of a sense of mutual obligation as
well as trust in a good buy.
Santa Maria Shoe Seller
Inside a public market
place reserved for small businesses, Consuelo Fernando Jose has used family
capital to buy the rights for one small stall to sell a variety of shoes. Each
stall is only four by six meters and her recent ability to buy the rights to
another stall in this public market indicates her entrepreneurial abilities.
Once a week she and her daughter drive to the far side of Manila in the early
morning hours to buy new stock at wholesale prices. This form of "buy and
re-sell" is common, where your access to transportation or special goods
makes it possible for you to pass on goods to the general public for a profit.
A new car and a newly built home for one of her daughters attests to the
importance of her business to the family's success.
Bakery
The front of a local
bakery near Santa Maria, Bulacan, is a common home with driveway and a couple
of sleepy dogs. While businesses in the city more commonly hide the living
quarters of the owners or staff, suburban and rural areas hide what business goes
on in the back yards. Here a bakery is set up in a space no larger than a two
car garage, supplying baked goods to hundreds of families in the area. When a
low paying factory job did not meet his needs, the owner (left in the photo)
began this bakery with funds loaned to him by a local bank, an amount he paid
back within a year. Though he had no previous experience in the business, a
family friend showed him the basics of baking and he has learned as the
business has grown. With the entire family supplementing his three full-time
employees, the owner can support a comfortable middle class lifestyle
Garment Factory
This small sewing factory
is located behind a residence on the rural edge of Santa Maria. The owners
started with only two borrowed sewing machines and the family's own savings
when their duck raising business started losing money. They had a lucrative
contract to make denim coveralls for export but now limit themselves to making
various clothing items for the local youth market. They contract out orders and
have 15 full time seamstresses in their own back yard factory. A local savings
cooperative provides the emergency capital when materials need to be obtained
or employees need to be paid. The owners and their two children can be seen in
the foreground. This same cooperative
recently closed its doors and many members found their savings had disappeared. Such occasional abuses are difficult to
prosecute and obtain redress for. It is
for this reason that many distrust cooperatives or rotating credit
associations, though sometimes need for some long term investment cash overrides
their fears.
Roadside Restaurant
Opening a restaurant is
a popular business for first-time entrepreneurs because all you need is a
corner of space, a hot plate and a few odd ingredients. While the husband, a
tricycle driver, built the structure and a friendly landowner allowed their use
of a small square of land, Ellen gives up most of her day to providing simple
snacks and meals to passing commuters and tricycle drivers along a busy road in
Santa Maria.
Ellen had ten years of previous experience in selling "ready to wear" (RTW) clothing in a small local shop, initially funded through a rotating credit association. With so much competition in that area, she used her savings of 50,000 pesos to start her own eatery. All labor and capital needs are met by her immediate family.
Saging Seller
Murphy's Market provides
space for stores and shops that cater to the working class members of Quezon
City. This woman specializes in selling different varieties of bananas. Though
she lives in a neighboring province, she bought a space in this urban market
for easier access to potential customers and to keep neighbors or friends from
consuming her profits.
With ten years of experience transporting vegetables to the city from rural areas, she now owns the stall and only has to pay standard business taxes. Though she gets her goods on credit (three days to pay), at times she borrows from a local savings cooperative where a loan of 20,000 pesos for a hundred days will average about eight percent interest
Vegetable Stand
It is very easy to start up a vegetable stall, but location is the key to success. This vegetable vendor occupies a prime spot just outside of Murphy's Market, and other family members have similar stalls nearby. She started her business almost twenty years ago with the financial help of what is referred to as a "five-six" or someone who will loan fast money with repayment of six pesos for every five loaned out. Such lenders continue to be important to her and many other small businesses in the Philippines, though such harsh interest rates make it only a last resort in times of need.
Meat Without the Cellophane
Also located outside of Murphy's, this meat vendor is a mom and daughter operation that was started fifteen years ago when their family sewing business was unable to make any money. They borrowed from a 5/6 for start up capital and, even though they belong to two savings cooperatives, borrow from the 5/6 regularly as needs arise. Why not borrow from the cooperative? Too slow. When you need fresh meat to keep your regular customers, you do what you have to do, whatever the short term cost
Farmers Need Money Too
The many small farmers in the Philippines also have problems in finding cash to buy seed and start the planting season. Just as in the United States, a farmer only brings a paycheck home once or twice a year when the crop comes in. Obtaining money from a bank to keep you going during the growing season can be a real problem, especially in the more rural and remote parts of the Philippines. The photograph at left is of a small farm in Palawan Province in July 2007. With no access to a bank, or even electricity, farmers in this area go to local community leaders who have the money to lend and a sense of responsibility to their poorer neighbors. Thus, having a steady income and money in the bank can be a burden with attached social responsibilities and obligations, yet it also provides a higher status and sense of place in the community. Not to participate in this reciprocal relationship, or to be stingy and not lend to those in need, is not something taken lightly by longstanding community members.
Focus Group
Though this research
project held more than one hundred in-depth interviews with many small- to
micro-business owners in the Manila/Quezon City/Bulacan area, focus groups were
also organized for group discussion on business needs and practices. The man on
my left sold fresh chicken at a marketplace in Quezon city but also raises
roosters to fight one another (a losing enterprise his wife wishes he would
give up). Another member of this group gets up at four every morning, drives a
commuter jeepney for a few hours, then picks up eggs at rural farms for his
wife to deliver to urban households later in the day. All agree that hard work
is necessary but that no amount of sweat will help you without easy access to
capital when you need it. For example, the jeepney driver had a three thousand
peso repair required on the jeepney. Without a quick loan to keep the jeepney
going, both small enterprises that keep his family housed and fed would be put
in jeopardy.
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