How Small And Medium Business Enterprises Can Grow Through Foreign Investors

Image taken from Market Business News

One of the biggest lies that was circulated perhaps for 31 years since the EDSA Revolution is that the 60/40 policy not only protects the local businesses but also helps Small and Medium Enterprise (SME) businesses grow. It's not real for this reason. The Philippines has already had the 1987 Constitution for 30 years (going 31 by next year) and yet did the SMEs grow as promised? On the contrast, economic protectionism has caused them to slow down. The SMEs today remain stagnant or are crushed by the oligarchs instead.

It's time to explain in a very layman's point of view and using basic economic principles to spread the word. I may be no economist but I'm trying to understand the principles of free trade vs. protectionism to explain how foreign investors may help small and medium enterprise businesses.

It's all about having new suppliers to help close the supply vs. demand gap

The supply and demand gap is something you can't ignore. The law of supply and demand says that if supplies are down and demand is up then prices will go up. If supplies are up and demand is low then prices will go low. The law of supply and demand is something that can't be altered like the law of gravity. No amount of resolutions in the Senate and the signature of the head of state will change any natural law. 

SMEs today have their competence limited by incompetence from the services provided by the oligarchs. Basic utilities such as water, electricity and transportation are very limited. Talk about paying much for incompetent services. The reason is the supply and demand gap. How can you demand for lower prices for services if the supply is very low? Limited transportation companies can slow down the manufacturing cycle of several companies. Very slow Internet can also mean not receiving online orders on time. Having a bad supplier of raw materials will result to lower quality of products. That is how economic protectionism is limiting competence at such a low level.

Let's put the scenario where we have several foreign investors to act as your suppliers and service providers. You have more choices now for your basic utilities than just the oligarchs. You have several choices which forces both local and foreign businessmen to innovate and be competitive. Now let's think about having many suppliers and service providers. You have more than one choice than just one or two. You can think of getting as many locally sourced materials as possible while you can get your not made in the Philippines materials directly from foreign investors. You can have several transport companies to help move your goods allowing more expansion. 

With more suppliers and service providers you can see how one can produce better products at a lower price. You end up having the advantage where customers pay less for more. Pricing itself is a competitive advantage. Although you have people who are willing to pay more but paying more more bad services is really a burden. If you can get better services for the price of less then it would be something you should take advantage of.

It's all about having new customers to help expand one's business

Those protectionist lovers love to whine how the SMEs will be crushed if you allow foreign investors. They don't see the Opportunity in SWOT. If you're doing business you analyze the Strengths, weaknesses, opportunities and threats related to business. I guess their entire analysis is based on weaknesses and threats. They end up thinking too little about opportunities and too much about threats. 

Foreign investors provide opportunities for SMEs in the Philippines to grow. SMEs can provide certain products and services they can use. These SMES may be involved in daily commodities, raw materials and menial services. These daily commodities can involve selling rice, corn grits, flour, sugar, salt and cooking oil. These raw materials may also involve selling wood or metal. These menial services may involve manpower provision and janitorial services.

For the SME opportunist when they see a foreign investor they can see both competition (threat) and opportunity. They see them as possible new customers. Let's have the scenario that new foreign investors have established their businesses. This would mean more customers to cater to. Before, the SMEs only have very few customers but now they have more customers that they could sell to.

Those who sell daily commodities in retail or wholesale may end up selling to more households. Daily commodity wholesalers can cater to new foreign-owned restaurants as possible customers. You may have only sold a few gallons of cooking oil or a few sacks of rice but now you may be selling a lot thanks to foreign investors who act as your new customers.

Those who well raw materials may be seeing foreign investors who want locally sourced raw materials so they can produce more for less. A good example would be those who provide wood. Before, they only have the local businessmen and a lot of supplies may not last. Later, they can start selling more of their wood to reduce excess inventory.

What about the menial service providers? You can think of it as another opportunity. For instance, you could be providing manual labor. Yet, you have many laborers still under your wing because you couldn't provide them work because there's hardly any work. Foreign investors would mean taking this stand-by excess labor force. This would mean more companies to send members of the labor force to so they can get a job rather than be stuck in limbo.

When will foreign investors crush down SME businesses?

That's a good question I want to answer. Foreign investors and local investors will always exist as threats and opportunities for every businessmen. It's like martial law and the knife. Martial law can be a threat when it's misused and abused but it's an opportunity to help monitor a heavy crisis. A knife is an opportunity to use to prepare food all the while it can be used in a crime scene. So how does it work?

The only SMEs that will be crushed are those that refuse to innovate and take opportunities to grow. In short, the incompetent SME is destined to be crushed by foreign investors. The competent SME is destined to take advantage of learning and growing from gaining new ideas, taking advantage of a wider market and better suppliers.

Let's make an  illustration of two Pinoy businessmen. I may have made this illustration before but let's see how these two SMEs will go. One Pinoy businessmen is so "nationalistic" that he refuses to take foreign products and services. He would go after the local businesses no matter how incompetent they are while expecting his business to grow. The other Pinoy businessman takes advantage of both the local and foreign investors. He takes on local suppliers for lesser priced supplies while getting international service providers who are more efficient and effective. The result is one SME crashed down while the other grew.