Connect with us

Hi, what are you looking for?


Bounce back, MSMEs!

Small enterprises face major challenges in 2021. Studies done before the pandemic revealed that about 20% of small businesses fail by the end of their first year. By the end of the fifth year, 50% go under, and by the 10th year, that number rises to 80%. With COVID-19, however, the attrition rate has accelerated substantially. In the Asia-Pacific region, nearly one-third of SMEs expect to lay off 50% or more of their workers just to survive.

Last year, the Philippines implemented one of the strictest lockdowns in the world which disrupted supply chains, introduced transport restrictions, reduced customer demand and affected the life blood of small business — cash flow. With dwindling working capital, rentals, wages, suppliers and creditors could not be serviced.

A survey by the Asia-Pacific MSME Trade Coalition in the first week of April 2020 revealed five major challenges that face small and medium enterprises. Foremost is the lack of operational cash flows as almost 50% of MSMEs (micro, small and medium enterprises) surveyed had less than a month or just a month of cash reserves. The other concerns include low customer demand, business closure due to state lockdown policies, and reduced opportunities to meet new clients. Finally, with the restrictions due to social distancing, MSMEs need to change their business models just to survive. Other concerns are obtaining raw materials, providing logistics, and physically moving products.

Workers are also not able to return to their jobs.

The Asian Development Bank has listed policy instruments that many governments have employed to support small businesses and address the short-term liquidity crunch. Income taxes, property taxes, and other payments due to the government are allowed to be deferred. Governments increased the availability of credit to SMEs through direct lending by state-owned banks, reduced interest rates, expanded credit guarantee schemes, and extended grace periods.

Some governments partially covered the cost of enterprises by providing wage subsidies and income support for the temporarily laid off. SMEs were encouraged to pivot to other business models, mainly by using digital solutions.

In the Philippines, the most visible support came in the form of the Bayanihan Act, which allowed the deferment of loan obligations to banks and a budget for MSME support. Credit assistance was made available through state institutions although its scale and availability remain to be validated. However, the wage subsidy scheme was something that our country could not afford. Many enterprises pursued digital finance and online sales, delivery, and customer service, but the low ICT investment in the country and poor internet connectivity were major bottlenecks.

To bounce back, Philippine MSMEs have to understand their pain points. Some government policy measures are on the way, but these are not sufficient. Our MSMEs must help themselves. Following are key areas that small businesses must address: 1.) find new customers; 2.) build brand awareness; 3.) delight customers; 4.) hire good and reliable people; 5.) improve processes; and, 6.) execute solid financial plans. These should be pursued within the context of adapting new business models.

Identifying the customers means figuring out the ideal customer targets so that appropriate content can be developed for them with recognizable brands and good reputations. Any serious small business today should have a website with a successful lead generation engine that turns visitors into customers. Businesses should understand what customers need, and deliver on their expectations. Whether a transaction is handled digitally or not, a business exists for its customers.

Amazon’s Jeff Bezos refers to the need for obsessive customer focus. Hiring is one of the biggest challenges for small businesses especially in these trying times. Businesses should hire people who are excited about the products and services. The next challenge is to manage the workflow whether it be in the production side or in the logistics end.

Finally, decisions must be financially solid. Businesses should use credit wisely, cut costs where possible, manage cash flow by staying on top of billings and suppliers’ concerns, do cost-benefit analyses, and maintain reliable records. Family businesses must separate personal expenditures from business expenses.

We can only hope that our government will muster enough discipline to choose the right policy tools, and more importantly, execute them well for our small businesses. For their part, entrepreneurs need to retool, re-engineer, and rehash their business models if 2021 is to be their year for bouncing back.


Benel D. Lagua is former Executive Vice-President at the Development Bank of the Philippines. With an AIM-MBM and a Harvard-MPA, he is a part-time faculty member of the Ramon V. del Rosario College of Business of De La Salle University.

Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Get the daily email that makes reading the news actually enjoyable. Stay informed and entertained, for free.
Your information is secure and your privacy is protected. By opting in you agree to receive emails from us. Remember that you can opt-out any time, we hate spam too!



Sy-led SM Retail, Inc. is pushing the inclusion of its Green Finds in each of its retail affiliate’s selling pod as the next step for its green movement...


DIGITAL TRANSACTIONS coursed through Land Bank of the Philippines (LANDBANK) increased in the first half, driven by increasing demand and the government’s push for...


1 of 2 Montblanc Meisterstück Glacier Doué Classique Fountain Pen Montblanc Meisterstück Glacier Doué Classique Rollerball “BY ALL MEANS move at a glacial pace....


1 of 6 The fifth-generation C-Class, which debuted globally last year, is now available in the Philippines. The lone variant, for now, is the...


LT Group, Inc. (LTG) posted an attributable net income of P8.87 billion in the second quarter, reversing last year’s net loss of P2.76 billion,...


THE Department of Agriculture (DA) said it is lifting the temporary ban on imports of poultry products from the US state of Missouri and...

You May Also Like


Having a good Instagram marketing agency to back up your Instagram account is an absolute must going into the new year. With competition stronger...


Ivermectin, an existing drug against parasites including head lice, has had a checkered history when it comes to treating COVID-19. The bulk of studies...


Insomnia is the most common sleep disorder in the global population. Therefore, it is a problem that many people suffer or have suffered throughout...


Instagram still holds the top spot for social media in terms of building brand reputation and expanding business potential. Every day, more and more...

Disclaimer:, its managers, its employees, and assigns (collectively "The Company") do not make any guarantee or warranty about what is advertised above. Information provided by this website is for research purposes only and should not be considered as personalized financial advice. The Company is not affiliated with, nor does it receive compensation from, any specific security. The Company is not registered or licensed by any governing body in any jurisdiction to give investing advice or provide investment recommendation. Any investments recommended here should be taken into consideration only after consulting with your investment advisor and after reviewing the prospectus or financial statements of the company.

Copyright © 2021 SmartRetirementReport. All Rights Reserved.