ONLY A SMALL SHARE of Philippine small businesses are connected to the global supply chain, with 1.3% of 530 surveyed companies directly exporting in 2016, the Philippine Institute for Development Studies (PIDS) said.

A PIDS study published this month found that Philippine small and medium-sized enterprises (SMEs) are unable to compete with their Southeast and East Asian counterparts in connecting to export markets.

“Since most local SMEs lack the ability to scale up production, they miss out on economies of scale, resulting in higher cost per unit of their products relative to their competitors,” the report said.

The Obstacles of Philippine SMEs’ Participation in Global Value Chains research report added that most Philippine exporters are at the low end of the value chain, exporting raw materials instead of processed, high-value products.

Philippine SMEs also find it challenging to meet international standards and regulatory requirements.

“Most of them have limited access to finance and skilled labor and lack the entrepreneurial mind-set and skills to expand their business,” the report said, adding that customs inefficiencies increase export and import costs.

According to the survey, 57% of the exporting small businesses — or four out of seven — were from the services sector. The remaining 43% were in manufacturing.

Some 485 of the surveyed SMEs were from the services sector, which means the exporting services companies make up 0.8% of the total.

The report said SMEs may also be connected to the global value chain through linkages with large domestic firms and multinational enterprises, which either export directly or sell products and services to exporters.

Only 23.4% of the surveyed SMEs sold to large firms, as most sell to either other SMEs or retail clients.

SMEs also form other formal linkages, with 14.5% of those surveyed experiencing being subcontracted, outsourced, licensed to manufacture a product, or engaged in a joint venture, strategic alliance, or consortium with either large domestic businesses or foreign companies.

The report said that industrial SMEs such as manufacturing companies are more connected to the global value chain than services companies.

“This could imply that there are either more GVC (global value chain) linkage opportunities for SMEs in the industry sector or obstacles in the industry sector are easier to overcome than in services.”

Industrial SMEs are more likely to engage in subcontracting and outsourcing, as well as receive manufacturing licenses. Services SMEs engage in joint ventures, alliances, and consortiums.

These formal linkages by industrial SMEs guarantee them revenue, while activities by services companies do not guarantee increased sales or profits, the study found. — Jenina P. Ibañez