CORRUPTION in the bureaucracy and tight competition make it doubly difficult for small enterprises to grow, according to a study by the Asian Institute of Management (AIM).
In a survey, titled “Drivers of Philippine SME Competitiveness,” by the Rizalino S. Navarro Policy Center for Competitiveness at the AIM, small and medium enterprises (SMEs) pointed to corruption, tight competition, as well as low quality of products as primary hindrances in growing their business. Out of 4, they scored tight competition 2.9, corruption 2.7 and low quality of products 2.7.
The report added SMEs also have to deal with government regulations, lack of government projects for SMEs, low quality of infrastructure necessary for trade, lack of management skills, lack of information on the industry and access to inputs and supplies. They gave all these
issues 2.6.
The report disclosed that the primary enablers of growth are good management skills of the owners and managers (3.8), good employee skills (3.7) and good quality of product (3.6). They also find confidence in lower cost of and easier business registration and good government regulations and policies, both at 3.1.
In terms of government regulation, SMEs find tax regulations (2.8) and the procedure in applying for a business permit (2.7) hindrances for growth, as well as regulations for exports and imports (2.6). “Results show that the top government regulation perceived as obstacle is tax regulation,” the report read.
“The other top perceived obstacles are ‘steps or procedures in applying for a business permit’ and ‘government regulations for exports and imports,’” it added.
The report noted the differences in how small and medium firms perceive the degree by which regulations obstruct their operations. Tax regulation is a bigger headache for small enterprises, while medium businesses are more concerned in the process for securing a business permit.
Corruption, too, is a troubling issue for SMEs, the report said. Among the 480 respondents that took part in the survey, 32.7 percent claimed they have to shell out money to give gifts or tokens to government officials for their requests and permits to be granted.
They have to spend 0.002 percent to up to 54 percent of their total annual expenses for informal payments, according to the report. Out of 131 SMEs that spent on informal payments, 110 of them are small businesses.
“Corruption and government inefficiencies flourish because of weak checks and balances. Therefore, corruption, as well as poor infrastructure and complicated exporting procedures, can be addressed by strengthening government institutions, especially in areas with low business activity or poor business growth,” the report recommended.
“Strong institutions influence behavior of firms and entrepreneurs to spend more productively on SME growth and development, instead of spending on informal payments and market inefficiencies. Overall, it is incumbent upon the government to provide the level playing field for SMEs to compete,” it added.