Non-traditional SME support network

Most local companies complain that it is difficult to do business in the Philippines due to the scarce production capability available locally. That is not true. The Philippine economy is in bad shape due to the unstable political and economic situation. Business is not good. Many factories and shops are producing much less than their rated capacities. This means that there is a lot of unused capacity in companies everywhere.

Many businesses in the country are service companies such as machine shops and automotive repair shops. Because of the passive nature of their business (they are dependent on the needs of either entities up-stream or down-stream the supply chain), they usually do not perform at peak capacity. Most of them only have business fifty percent of the time; others are only busy twenty percent of the time. The unused capacity is already accepted as industry norms and is factored in as part of the cost of doing business and written-off as excess capacity. Local companies could tap this excess in order to boost their manufacturing capability.

Another interesting production model popular in the Philippines is the cottage-industry model. This is commonly applied in the handicraft business. Just as there is a lot of unused capacity in micro-enterprises, there is also untapped production potential within the common household – housewives, elderly, small children and the unemployed workforce. Handicraft manufacturers give free training to these people on how to make a particular item. The manufacturers then deliver the raw materials to their homes at the start of the week and pick up the finish goods at the end of the week. Payment is on a per finished item basis and there are weekly production quotas.

Technology industries in the Philippines have yet to tap this production system. However, in China, unofficial sources narrate of villages that produce fake Sony video cameras. Villagers were given basic training in electronics such as components identification and soldering. Components are shipped in from Taiwan, assembled there and then brought to appliance stores all over the world. The amazing thing about this system is that the quality of their equipment is comparable to those made by Sony of Japan. This story may or may not be true. However, if you think about it, a high-tech cottage industry is indeed possible.

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