Obstacles of Philippine SMEs' Participation in Global Value Chains

Small and medium enterprises (SMEs) play an important role in the economy of many developing countries. In the Philippines, SMEs, including microbusinesses, account for 99.5 percent of firms and 63.2 percent of employment. However, this sector remains much less productive than their large counterparts. One way to help SMEs achieve higher productivity is to connect them to global value chains (GVCs). There are, however, a number of obstacles that make participating in GVCs difficult for SMEs. This paper attempts to determine the challenges as well as the enablers of connecting SMEs to GVCs. It uses data from a survey of SMEs in Metro Manila and a set of key informant interviews (KIIs) of SME owners and officials of government agencies tasked to assist SMEs. Survey findings indicate that Philippine SMEs are weakly linked to GVCs. A thematic analysis of KII data suggests that challenges and enablers can be grouped into five themes: (1) competition among countries in the Association of Southeast Asian Nations and East Asia; (2) international standards, regulatory requirements, and local institutions; (3) role of the government and institutions; (4) adapting to changes in international market demand and input supply; and (5) entrepreneurial mindset and skills. Based on the results, some policy implications were formulated.