A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics Hampel-Milagrosa, Aimée Research Report Micro and small enterprise upgrading in the Philippines: the role of the entrepreneur, enterprise, networks and business environment Studies, No. 86 Provided in Cooperation with: German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE), Bonn Suggested Citation: Hampel-Milagrosa, Aimée (2014) : Micro and small enterprise upgrading in the Philippines: the role of the entrepreneur, enterprise, networks and business environment, Studies, No. 86, ISBN 978-3-88985-640-1, Deutsches Institut für Entwicklungspolitik (DIE), Bonn This Version is available at: http://hdl.handle.net/10419/199211 Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes. 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On the basis of independent research, it acts as consultant to public institutions in Germany and abroad on current issues of cooperation between developed and developing countries. Through its nine-month training course, the German Development Institute prepares German and European university graduates for careers in the field of development policy. Aimée Hampel-Milagrosa studied Agricultural Economics (BSc) and Development Economics (MSc, cum laude) at the University of the Philippines at Los Baños and the University of Ghent, Belgium respectively. She finished her PhD in Social Science specializing in Institutional Economics at Wageningen University and Research Centre in the Netherlands. After obtaining her doctorate in 2006, she worked as a Senior Researcher for the Department of Economic and Technological Change at the Center for Development Research (ZEF) of the University of Bonn. She transferred to the Department of Sustainable Economic and Social Development of the German Development Institute (DIE) in 2007 and alongside working on BMZ- funded projects has consulted for GIZ, BICC, DANIDA and UNIDO. She specializes in private sector development, entrepreneurship, gender, and value chains. E-mail: [email protected] Studies Deutsches Institut für Entwicklungspolitik 86 Micro and Small Enterprise Upgrading in the Philippines: The role of the entrepreneur, enterprise, networks and business environment Aimée Hampel-Milagrosa Bonn 2014 Studies / Deutsches Institut für Entwicklungspolitik ISSN 1860-0468 Die deutsche Nationalbibliothek verzeichnet diese Publikation in der Deutschen Nationalbibliografie; detaillierte bibliografische Daten sind im Internet über http://dnb.d-nb.de abrufbar. The Deutsche Nationalbibliothek lists this publication in the Deutsche Nationalbibliografie; detailed bibliographic data is available at http:// dnb.d-nb.de. ISBN 978-3-88985-640-1 © Deutsches Institut für Entwicklungspolitik gGmbH Tulpenfeld 6, 53113 Bonn +49 (0)228 94927-0 +49 (0)228 94927-130 E-mail: [email protected] http://www.die-gdi.de Foreword and Acknowledgements This Philippine MSE Upgrading study is part of a three-country research project carried out by the Department of Competitiveness and Social Development of the German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE), a leading international think tank for development policy. All three country-case studies employed similar methodologies to compare the upgrading dynamics of MSEs in the Philippines, Egypt and India. The overarching research questions that guided the country-case studies are: 1. Why do some enterprises manage to upgrade while others do not? 2. How does the enterprise-upgrading process unfold? The author is very grateful to the following individuals and agencies for supporting this Philippine MSE Upgrading study: My research assistants Mary Fchel Estanislao in Luzon and Recarte Bacus in Mindanao; the Philippine Department of Trade and Industry Bureau of Micro, Small and Medium Enterprise Development (DTI BMSMED) and the Trade and Micro, Small and Medium Enterprise Development Division (TMSMEDD) Region 11; and the Bundesministerium für wirtschaftliche Zusammenarbeit und Entwick- lung (BMZ) Philippines / the Federal Ministry for Economic Cooperation and Development Philippines through its Private Sector Promotion Program (SMEDSEP), headed by Dr. Volker Steigerwald. The author is indebted to Mrs. Ma. Christina B. Ramos, former president of the Food Processors Association of Davao (FPAD), Mr. Claro Arriola, former president of the Textile Mills Association of the Philippines (TMAP) and Mr. Joel Gaudia, president of the Samahang Magsasapatos ng Pilipinas (Association of Shoemakers in the Philippines) for their invaluable support in helping locate entrepreneurs for interviews. In the course of the research, two presentations were made at the Asian Institute of Management in coordination with its Executive Director, Dr. Ronald U. Mendoza. In May 2013, the Institute for Small Scale Industries of the University of the Philippines Diliman hosted two workshops (in Manila and Cebu) to discuss the project findings. The 20th UP President, Honorable Dr. Alfredo E. Pascual, graced the Manila event with his presence, while the UP Cebu College Dean, Atty. Liza D. Corro, welcomed the research team to Cebu. The author is grateful for our intellectual exchange. Finally, the author is deeply grateful to Markus Loewe, Caroline Reeg and Tilman Altenburg for their helpful comments regarding the conceptualization, implementation and writing up of this Philippine MSE Upgrading study. Bonn, May 2014 Aimée Hampel-Milagrosa Contents Abbreviations Executive summary 1 1 Introduction 9 2 MSME Upgrading – a conceptual framework 11 2.1 MSE upgrading definitions 12 2.2 Determinants of enterprise upgrading 15 2.2.1 Internal upgrading factors: entrepreneur and enterprise characteristics 17 2.2.1.1 Entrepreneur characteristics 17 2.2.1.2 Enterprise characteristics 19 2.2.2 External upgrading factors: networks and the business environment 21 2.2.2.1 Personal and professional networks 22 2.2.2.2 Business environment 24 3 The policy environment and MSE performance 26 3.1 Philippine MSE policy environment 26 3.2 Philippine MSE performance 28 4 Methodology of the Philippine MSE upgrading study 33 4.1 Survey area and sector selection 35 4.2 Respondent selection 37 4.3 Questionnaires and data management 40 5 Findings on SME upgrading in the Philippines 42 5.1 Sample composition 43 5.2 Cross-sectoral overviews 60 5.3 Upgrading trajectories in food processing 66 5.3.1 The Philippine food processing sector 67 5.3.2 The sample 70 5.3.3 The ranking 81 5.3.4 Analysis of upgrading dynamics in the food processing sector 94 5.4 Upgrading trajectories for footwear and leather enterprises 99 5.4.1 The Philippine footwear and leather sector 99 5.4.2 The sample 104 5.4.3 The ranking 113 5.4.4 Analysis of upgrading dynamics in footwear and leather 121 5.5 Upgrading trajectories in textiles and garments 125 5.5.1 The Philippine textiles and garments sector 126 5.5.2 The sample 130 5.5.3 The ranking 139 5.5.4 Analysis of the upgrading dynamics in the textiles and garments sector 148 5.6 Summary 151 6 Takeaways and policy directions 154 6.1 Takeaways 155 6.2 Policy implications 158 Bibliography 161 Tables Table 1: MSME classification in the Philippines 28 Table 2: Philippine MSME profile (2006 and 2008) 29 Table 3: Doing Business 2013 ranking of the Philippines and selected Asian economies 31 Table 4: Philippine enterprise-size categorization by asset and number of employees 37 Table 5: Purposive sampling methods and number of respondents 39 Table 6: Descriptive characteristics of upgraders and non-upgraders 43 Table 7: Absolute and average growth rates of upgraders and non-upgraders (employee size) 52 Table 8: Types of innovation by upgraders and non-upgraders 53 Table 9: Sources of business ideas 55 Table 10: Descriptive statistics of the food processing sector 72 Table 11: Financial capitalization of food processors (at start-up and in 2012) 75 Table 12: Absolute and compounded annual-growth rates of food processing upgraders and non-upgraders (based on employee size) 78 Table 13: Types of innovation