Management of Small Enterprises

Overview of Entrepreneurship

Rhoda Marie R. Cuaresma-Manansala

Entrepreneurship

• The ability of the individual to determine and come up with the proper combination of the resources available in his environment and transform this into an output of either goods or services, and obtain a fair profit at the price the entrepreneur sets.

Socio-Economic Impact of Entrepreneurship

• Promotes self-help and employment• Mobilizes capital• Provides taxes to economy• Empowers individual• Enhances national identity and pride• Enhances competitive consciousness• Improves quality of life• Enhances equitable distribution of income and

wealth

Who is the Entrepreneur?

• “ to innovate”

• One who organizes, manages and assumes the risk of a business or an enterprise (Webster)

• Somebody who has an idea for a business or enterprise and is prepared to take a risk without the certainty of profit

• A person responsible for profitably combining the various factors of production – land, labor and capital

ENTREPRENEUR

• Somebody who has IDEAS and makes these ideas happen or come to life.

• Must have some BUSINESS SKILLS (ideation, creativity & innovation)

• Somebody who ASSUMES RISKS

• Desires to MAKE PROFIT

Small and Medium Enterprise (SME)

• SMEs are defined as any business activity or enterprise engaged in industry, commerce, agribusiness and/or services, whether single proprietorship, partnership, cooperative or corporation, whose total assets, inclusive of those arising from loans but exclusive of the land on which the particular business entity’s office, plant and equipment are situated must have value falling under the following categories:

In terms of Capitalization

Small and Medium Enterprise Category

Amount of Capitalization

Micro Enterprise Less than Php3 Million

Small Enterprise From Php3M to Php15M

Medium Enterprise From Php15M to 100M

Large Enteprise Php100 Million and above

In terms of Employment Size

Small and Medium Enterprise Category

Employment Size

Micro Enterprise Less than 10 employees

Small Enterprise From 10 to 99 employees

Medium Enterprise From 100 to 499 employees

Large Enterprise 500 employees and above

Importance & Benefits of Small Businesses Today

• The small business sector continues to create many of the new ideas and innovations that future generations tend to take for granted.

• Small businesses contribute to the Gross National Product (GNP) of a country and meet local needs that many of the national producers do not offer.

Importance & Benefits of Small Businesses Today

• It is the vibrance of the local economy that continues to draw investors into an area, and encourage local people to stay and contribute to the community’s productivity.

• The presence of micro-enterprises and small business contribute to the revenues of local communities.

Reasons why small businesses survive and prosper:

• Small businesses develop more personal relationships

• Relatively low overhead costs

• Catering to limited or niche markets

• Quicker response to trends and situations

Laws that Govern Entrepreneurship in the Philippines

• National SME Development Agenda

• Barangay Micro Enterprises Act

• The Anti-Dumping Act of 1999

• Consumer Act of the Philippines

• Electronic Commerce Act of 2000

• Price Act

Laws that Govern Entrepreneurship in the Philippines

• Others– Tobacco Regulation Act of 2003 (RA 9211)– Export Development Act (RA 7844)– Foreign Investment Act (RA 7042)– Retail Trade Liberalization Act (RA 8762)– Safeguards Measures Act– Transaction Value Act

National SME Development Agenda

Barangay Micro Business Enterprises (BMBEs) Act of 2002

• It is hereby declared to be the policy of the State to hasten country’s economic development by encouraging the formation and growth of BMBEs which effectively serve as seedbeds of Filipino entrepreneurial talents, and integrating those in the informal sector with the mainstream economy, through the rationalization of bureaucratic restrictions, the active intervention of the government specially in the local level, and the granting of incentives and benefits to generate much-needed employment and alleviate poverty.

• “Barangay Micro Business Enterprise”– Engaged in the production,

processing or manufacturing of products or commodities

– Whose total assets shall not be more than Three Million Pesos (Php 3,000,000)

• Services – excludes exercise of profession duly licensed by the government

• Certificate of Authority • Assets – all kinds of properties, real

or personal owned and/or used by the BMBE for the conduct of its business.

• Where to register: Office of the Treasurer of each city or municipality

• Fee : not to exceed One Thousand Pesos (P1,000)

• Effectivity : 2 years renewable for a period of 2 years for every renewal

Incentives and Benefits

• Exemption from Taxes and Fees• Exemption from the coverage of the

Minimum wage law• Credit Delivery• Technology transfer, production and

management training and marketing assistance

• Trade and investment promotion

The Anti-Dumping Act of 1999• Whenever any product, commodity or article of commerce

imported into the Philippines at an export price less than its normal value in the ordinary course of trade for the like product, commodity or article destined for consumption in the exporting country is causing or threatening to cause material injury to a domestic industry, or materially retarding the establishment of a domestic industry producing the like product, the Secretary of Trade and Industry, in the case of non-agricultural product, commodity or article, or the Secretary of Agriculture, in the case of agricultural product, commodity or article, after formal investigation and affirmative finding of the Tariff Commission, shall cause the imposition of an anti-dumping duty equal to the margin of dumping on such product, commodity or article and on like product, commodity or article thereafter imported in the Philippines under similar circumstances, in addition to ordinary duties, taxes and charges imposed by law on the imported product, commodity or article

Consumer Act of the Philippines (Republic Act No. 7394)

• Protects the interest of the consumer, promotes his general welfare and establishes standards of conduct for business and industry

Consumer Act of the Philippines Objectives

a. protection against hazards to health and safety;

b. protection against deceptive, unfair and conscionable sales acts and practices;

c. provision of information and education to facilitate sound choice and the proper exercise of rights by the consumer;

d. provision of adequate rights and means of redress; and

e. involvement of consumer representatives in the formulation of social and economic policies.

Electronic Commerce Act of 2000 (Republic Act No. 8792)

Provides for the legal recognition and admissibility of electronic data messages, documents and signatures

E-commerce Act

• Mandates all government department and offices to accept electronic data messages and documents in their transactions within two years from its effectivity.

• Provides for penalties on computer hacking, introduction of viruses and piracy of copyrighted works of at least P100,000 and maximum commensurate to the damage incurred, and imprisonment of six months to three years, among others;

E-commerce Act

• Promotes e-commerce in the country, particularly in business-to-business and business-to-consumer transactions whereby

Price Act (Republic Act No. 7581)

• Protects consumers by stabilizing the price and supply of basic necessities and prime commodities without denying legitimate business a fair return on investment and by prescribing measures against undue price increases especially during the emergency situations and similar occasions

Tobacco Regulation Act of 2003 (RA 9211)

• Enacted to protect the populace from hazardous products and promote the right to health and instill health consciousness among them.

• Safeguards the interests of the workers and other stakeholders in the tobacco industry.

Main thrust of RA 9211

• Promote a healthful environment

• Inform the public of the health risks associated with cigarette smoking and tobacco use

• Regulate and subsequently ban all tobacco advertisements and sponsorships;

• Regulate the labeling of tobacco products;

Main thrust of RA 9211

• Protect the youth from being initiated to cigarette smoking and tobacco use by prohibiting sale of tobacco products to minors;

• Assist and encourage Filipino tobacco farmers to cultivate alternative agricultural crops to prevent economic dislocation; and

• Create an inter-agency committee on Tobacco (IAC-Tobacco) to oversee the implementation of the provisions of this Act.

Export Development Act (RA 7844)

• Aims to develop the country’s export sector and meet the country’s export goals

• Puts into focus a national strategy for a sustainable agri-industrial development to push the Phlippines’ image as a newly industrialized country.

Export Development Act (RA 7844)

• Enjoins the government and the private sector to consolidate efforts to promote exports and expand the country’s share in the international markets by promoting industries that are considered export winners.

Foreign Investments Act (RA 7042)

• Recognizes the role extent played by foreign investments in the economy, and sets into place the procedures for the registration and grant of incentives to foreign investors.

• Specifies the limits on the extent of allowable foreign ownership

Foreign Investments Act

• There are no restrictions on foreign ownership in export and domestic market enterprises, but a Foreign Investment Negative List or Negative List defines the areas of economic activities where foreign ownership is limited. (see Foreign Investment List)

Foreign Investment Act

• Former natural-born Filipinos are granted the same investment rights of a Philippine citizen based on existing investment and related laws. However, former natural-born Filipinos are restricted in come areas such as defense-related activities, exercise of profession, activities covered by the Retail Trade Act, Small Scale Mining Act, Rice and Corn Industry Act and other laws

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Foreign Investment List

• Released on August 11, 1998

• Defines the areas where restrictions on foreign ownership as specified by the Constitution and certain laws exist.

• Identifies the areas or industries, which are closed to foreigners\

Foreign Investment List

• No foreign equity is allowed in mass media; services involving the practice of professions, such as engineering, medical and allied profession, accountancy, criminology, architecture, law, etc.; retail trade; cooperatives; small-scale mining, utilization of marine resources; ownership and operation of cockpits; manufacture, repair of nuclear weapons and other biological, chemical weapons, etc; and other areas.

• Up to 25% foreign ownership is allowed for private requirement, whether for local or overseas employment; locally-funded public works, except for infrastructure/development projects and foreign-funded or assisted projects

• Up to 30% foreign equity is allowed in advertising• Up to 40% foreign equity for exploration,

development and utilization of natural resources; ownership of private lands; operation and management of public utilities, educational institutions; rice and corn administration; contracts to supply materials, good and commodities to GOCCs; project proponent of a BOT project in public utilities; deep-sea commercial fishing vessels operation and condominiums

• Up to 60% ownership in financing companies regualted by the SEC and investment houses

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Retail Trade Liberalization Act (RA 8762)

• Provides four major qualifications for a retailer before being allowed to do business in the country.

a. A minimum of US$200 million net worth in its parent corporation for Categories B and C, and US$50 million net worth in its parent corporation for Category D;

b. Five Retailing branches or franchises in operation anywhere around the world, unless such retailer has at least one store capitalized at a minimum of $25 million;

c. Five-year track record in retailing; and

d. Only nationals from, or juridical entities formed or incorporated in countries which allow the entry of Filipino retailers, shall be allowed to engage in retail trade in the Philippines

Categories

• Category A – enterprises with a paid-up capital equivalent in Philippine pesos to less than $2.5 million shall be reserved exclusively for Filipinos;

• Category B – enterprises with a minimum paid-up capital equivalent in Philippine pesos to $2.5 million but less than $7.5 million, in which case foreign equity will be allowed in the first two years up to a maximum of 60%. On the third year, 100% ownership will be allowed.

Categories

• Category C – allows 100% foreign ownership of retailers whose paid-up capital of the equivalent in Philippine pesos will be at least $7.5 million; and

• Category D – allows 100% foreign ownership of stores selling high-end or luxury products if the minimum capital is at least $250,000 per store.

• Foreign retailers under categories B and C whose ownership exceeds 80% of equity will be required to offer their shares to the public (minimum of 30% of equity) within 8 years from the start of commercial operation.

• Qualified foreign retailers will also be barred from engaging in activities outside their stores through mobile or rolling stores or carts, and the use of sales representatives, door-to-door selling, restaurants and sari-sari (variety) stores.

Safeguards Measures Act (RA 8800)

• Contains measures to protect local manufacturers from trade practices that are seen as unfair. It provides relief to domestic industries when a sudden increase in imports adversely affects local industries

• The government can levy a higher tariff on imports of agricultural products once these breach a certain volume or price, protecting local farmers growing the same products

Safeguards Measures Act

• Also provides an adjustment period for the agricultural sector to become competitive, as well as adjustment plans for other affected sectors to help enhance competitiveness.

Transaction Value Act (RA 8181)

• Changes the basis of dutiable value of imported articles subject to an ad valorem rate of duty from Home Consumption Value (HCV) to Transaction Value (TV)

Transaction Value

• The price actually paid or payable for goods that are exported to the Philippines

• The price that appears on the accompanying commercial or sales invoice issued in the country of origin or exporting country.

• The TV system enables local manufacturers or producers to price their export products more competitively and allows the Philippines to align its valuation system not only with its ASEAN neighbors but also with the rest of the world.