By Bernie Cahiles-Magkilat
Vast majority of Philippines’ small and medium enterprises (SMEs) are posting strong trade growth boosted by the country’s digital economy that is rapidly growing at a rate faster than the Asia Pacific (APAC) average, according to a study.
The study, “Global is the New Local: The Changing International Trade Patterns of Small Businesses in Asia Pacific” commissioned by FedEx Express showed that exports account for 89 percent of Philippine SMEs’ total annual revenues with a combined value of $1.4 billion, significantly higher than the APAC average of 71 percent.
According to the study, the net benefit or contribution to the Philippine is $554,000 annually per SME.
The majority of local SMEs (69%) export within the APAC region and more than half (53%) export to other regions. Within APAC, China, Singapore, and Hong Kong are Philippines’ top customers.
Notably, India has topped as the Philippines top export market outside of Asia Pacific region.
India accounts for 27 percent of total Philippine SME exports, higher than the US with 24 percent share and Germany, 15 percent.
John Peterson, managing director of FedEx-Express Philippines, attributed India’s growing influence in the Philippines SMEs to their having a free trade deal with ASEAN, Indian government’s aggressive promotion, and its diverse products as raw material inputs.
Within the APAC region, China still remains the largest with 37 percent share followed by Singapore (36 percent), Hong Kong (34 percent) and Malaysia (30 percent).
In terms of imports, the study showed that 59 percent of the SMEs surveyed prefer to source items locally, Philippine SMEs also source raw materials and finished products from China, Japan, Singapore, and India.
APAC countries account for 78 percent of total imports led by China (43 percent), and Japan and Singapore (29 percent each).
Outside APAC, the Central and South Asia account for 26 percent with India now the biggest source with 21 percent share, and Bangladesh and Pakistan with 7 percent share each.
Though Philippine SMEs are posting robust trade numbers, they continue to face two challenges: Customs procedures (66%) and logistics issues (53%) in both exports and imports.
“We see the global trade footprint of Philippine SMEs is moving further afield as they start to think bigger in this thriving digital economy,” said Petersen.
“Two out of three local SMEs say they will continue or even increase their export activities beyond the APAC region within the next year. We are pleased to see that more SMEs are growing their business beyond Asia Pacific with an increasing need for more sophisticated logistics solutions,” said Peterson.
The study showed that 56 percent of SMEs forecast a slight increase in exports in 12 months while 18 percent expect a significant decline.
Most surprising is the level of online engagement by Philippine SMEs.
According to the research report, 96 percent of Philippine SMEs use e-commerce, which accounts for half (52%) of their total revenues.
Mobile commerce has high penetration among SMEs as well, with 89 percent using m-commerce to import goods and to find new customers. A significant 95 percent of SMEs use social platforms to reach new customers in other markets.
Additionally, Philippine SMEs are quickly adopting new technologies with 8 out of 10 saying they use both mobile payments and software automation to make their supply chains and distribution channels more efficient. These numbers are even higher than the APAC average which is 77 percent for software automation and 73 percent for mobile payments.
For instance, he said that FedEx is using software for sorting, weighing and to measure packages before moving on to their next destination.
Majority of SMEs also project their digital business growing further.
The results are based on interviews with 4,543 senior executives of SMEs held online and by telephone in nine markets in Asia Pacific between March and April 2018.