Chapter 3 & 4: Entrepreneurship and the Government (Philippines)

CHAPTER 3 ENTREPRENEURSHIP AND THE GOVERNMENT "...the government has an important role to create the conditions that promote entrepreneurship, upward mobility and individual responsibility" \~ Paul Ryan To develop and nourish the entrepreneurial sector, the government plays a crucial role, polic...

CHAPTER 3 ENTREPRENEURSHIP AND THE GOVERNMENT "...the government has an important role to create the conditions that promote entrepreneurship, upward mobility and individual responsibility" \~ Paul Ryan To develop and nourish the entrepreneurial sector, the government plays a crucial role, policies need to be created and adopted to provide support for this sector which brings about development and growth impacts to the community and economy. Various government agencies collaborate to form an innovative entrepreneurial ecosystem. These include; the [Department of Trade and Industry (DTI),] the [Department of Science and Technology (DOST),] the [Commission on Higher Education (CHED]), and the [Philippine Association of State Universities and Colleges (PASUC).] The agencies mentioned are undertaking assessment of patterns that support the creation of more [Micro Small and Medium Enterprises (MSMEs)] with an innovation-driven culture that results in high value products and services. A strong Philippine Innovation and Entrepreneurship Ecosystem that "promote collaborative agreements between industry, government, and the academe to encourage partnerships in support of advanced manufacturing and services" [Support for Entrepreneurs -] With proper and adequate assistance programs, our government can develop a larger entrepreneurial economy. Priorities should be focused on micro-and small enterprises. [Government Assistance Programs] These are various [programs/platforms by the government in support for the business industries]. (Santos, M.G, Entrepreneurship lecture, 2015) 1\. Peace and 2\. Political 3\. Price stability 4\. Taxes 5\. Infrastructures 6\. Education and training 7\. Public administration 8\. Production technology 9\. Marketing assistance 10\. Financial Assistance These can be obtained from the following government institutions: a\. Land Bank of the Philippines (LBP) b\. Technology and Livelihood Resource Center (TLRC) c\. Development Bank of the Philippines (DBP) d\. Institute of Small Scale Industries (ISSI) e\. Peoples Credit Finance Corporation (PCFC) f\. Small Business Guarantee and Finance Corporation (SBGFC) [Micro Small and Medium Enterprises (MSME) in the Philippines ] An MSME in the Philippines is defined as any business activity or enterprise engaged in industry, agri-business and/or services that has: (1) an asset size (less land) of up to PhP100 million; and (2) an employment size with less than 200 employees. 1 Based on these categories, it is classified as micro, small or medium regardless of the type of business ownership (i.e., single proprietorship, cooperative, partnership or corporation) **MSME Classification** ------------------------- -------------------------------- ------------------------------ ***Enterprise*** ***By Asset Size*** ***By Number of Employees*** **Micro** Up to Php3,000,000 1 -- 9 employees **Small** Php3,000,001 - Php15,000,000 10 -- 99 employees **Medium** Php15,000,001 - Php100,000,000 100 -- 199 employees The 2017 List of Establishments of the [Philippine Statistics Authority (PSA)] recorded a total of 924,721 business enterprises operating in the Philippines. [Micro, small and medium enterprises (MSMEs)] account for 99.56% (920,677) of the total establishments, of which 89.59% (828,436) were microenterprises, 9.56% (88,412) were small enterprises, and 0.41% (3,829) were medium enterprises. Large enterprises made up the remaining 0.44% (4,044). [Sectoral Distribution] The top five (5) industries in terms of the number of MSMEs in 2017 were: (1) Wholesale and Retail Trade; Repair of Motor Vehicles and Motorcycles with (46.01%) 423,637 establishments; (2) Accommodation and Food Service Activities with (13.22%) 121,740; (3) Manufacturing with (12.61%) 116,071 establishments; (4) Other Service Activities with (6.24%) 57,491 establishments; and (5) Financial and Insurance Activities with (4.45%) 41,012 establishments. These industries accounted for about 82.54% of the total number of MSME establishments. [Magna Carta for Small Enterprise -] The Philippine congress enacted [Republic Act 6977] (as amended by [RA 8289]) otherwise known as "Magna Carta for Small Enterprise". Herein with stated that it is: An Act To Promote, Develop And Assist Small And Medium Scale Enterprises through the creation of a Small and Medium Enterprise Development (SMED) Council, and the rationalization of Government Assistance Programs And Agencies Concerned With The Development Of Small And Medium Enterprises, and for other purposes. [Small and Medium Enterprise Development (SMED) Council] The SMED council is created to effectively spur the growth and development of small and medium enterprises throughout the country. It is the primary agency responsible for the promotion, growth and development of small and medium enterprises in the country by way of facilitating and closely coordinating national efforts to promote the viability and growth of small and medium enterprises. [Government Agencies that support Entrepreneurship] Below is a list of the government agencies that an entrepreneur need to go to and the permits need to apply for: Department of Trade and Industry (DTI) - This is where to register if the enterprise is a single proprietorship. The agency will issue a certificate of registration of business name. Securities and Exchange Commission (SEC) - If the enterprise is a partnership or a corporation, this is where an entrepreneur will register. It will issue a certificate of registration. Cooperative Development Authority (CDA) - If the set-up is a cooperative, register with this body. The agency will issue the certificate of registration. Local Government Unit (LGU) - Register with the municipality or city where the business will set up. This office will issue the business permit. Barangay Hall - Register with the specific barangay in the municipality or city where the business will operate. This office will issue the barangay clearance. Bureau of Internal Revenue (BIR) - Register business with this office and apply for business's taxpayer identification number (TIN), registration of books of accounts, authority to print Social Security System (SSS) - Register business as an employer, an entrepreneur as a self-employed or as employee, and workers as employees. This office will issue an SSS number for the business, for yourself, as well as for the workers. Department of Labor and Employment (DOLE) - If the entrepreneur employed five workers or more, register the business with this agency. The DOLE is asked to promote gainful employment opportunities, protect workers and promote their welfare, develop human resources, and maintain industrial peace. Home Development Mutual Fund (HDMF) - RA 7742 requires all SSS members earning at least P4,000 a month to register with this agency. HDMF administers the Pag-Ibig Fund. Philippine Health Insurance Corp. (PhilHealth) - The New National Health Insurance Act (RA 7875) as amended by RA 9241 requires all employers of the government and private sectors and their employees to register with this agency. PhilHealth manages and administers the government health care system. [Entrepreneurship and Department of Tourist-] Go Negosyo and ASEAN Business Advisory Council of the Philippines in partnership with the Department of Tourism and Tourism Promotions Board recently conducted the First Tourism Summit 2019, which aimed to support existing and budding entrepreneurs focusing on tourism and hospitality in the whole archipelago. The summit aimed to improve the tourism industry through the different development programs for the five "A's" of tourism: Arrival, Access, Accommodations, Attractions and Activities. The 5 A's of tourism are the factors that define the experience of a tourist when one travels abroad. They were defined by [Dickman in 1997]. Travel management experts understand that there has to be a healthy balance between all 5 A's in order for the tourist to have a good experience. CHAPTER 4 THE ENTREPRENEURIAL PROCESS [Identification and Evaluation of the Opportunity] "The focus of an entrepreneur is how to add value to the society. Money is not an objective, money is a byproduct" \~unknown "The key to entrepreneurial success is the fit among the entrepreneur/team, the product concept, the opportunity, the resources, and the entry strategy" "The most serious mistakes are not being made as a result of wrong answers. The truly dangerous thing is asking the wrong question". -- Peter Drucker The entrepreneurial process is a process of pursuing a new venture that involves more than just problem solving in a typical management position. An entrepreneur must find, evaluate, and develop an opportunity by overcoming the forces that resist the creation of something new. The process has [four phases]: 1\. Identification and Evaluation of the opportunity - The entrepreneur begins to wonder why there is not available product or service, why not improve certain things, how to generate income to cover their expenses, etc. 2\. Development of the business plan- A critical point in the entrepreneurial process is deciding to start the project. Be active and stay motivated are the main factors for the entrepreneur to start landing his idea 3\. Determination of the required resources- The project is conducted when the entrepreneur decides to seek and obtain resources. Getting financial support is difficult, and perhaps one of the main obstacles to start a business. [What kinds of resources are needed?] Capital. This requires an understanding of cash flow needs, break-even time frames, and other details. Facilities, equipment, and transport. The resource requirement, however, must be identified. Arrangements for leasing or owning, vendor negotiations, truck or rail transport, or temporary rental solutions are all decision options depending on the product or service provided. Know-how. Record keeping and accounting and legal process and advice are essential resources that must be considered at the start of every venture. New ventures require legal incorporation, financial record keeping, and rudimentary systems. Resources to provide for these expenses must be built into the budget. 4\. Management of the resulting enterprise- The entrepreneur should strive to maintain revenue growth before worrying about having a nice office. Managing a business is not easy, but the experience that entrepreneurs acquire over time will surely ease the handling of all resources. [Opportunity Recognition -] As discussed in the Entrepreneurship and Innovation Toolkit from the University of Saskatchewan, theorists and practitioners have provided different concept of opportunity recognition, particularly to new business ventures; [Drucker -] Systematic innovation involves "monitoring seven sources for innovative opportunity" (Drucker, 1985, p. 35). The first four are internally focused within the business or industry, in that they may be visible to those involved in that organization or sector. The last three involve changes outside the business or industry. [Internally Focused] o The unexpected (unexpected success, failure, or outside events) o The incongruity between reality as it actually is and reality as it is assumed to be or as it ought to be o Innovation based on process need o Changes in industry structure or market structure that catch everyone unawares [Externally Focused] o Demographics (population changes) o Changes in perception, mood, and meaning o New knowledge, both scientific and nonscientific Opportunity recognition is the active, cognitive process (or processes) through which individuals conclude that they have identified the potential to create something new that has the potential to generate economic value and that is not currently being exploited or developed, and is viewed as desirable in the society in which it occurs (i.e. its development is consistent with existing legal and moral conditions). (Baron, 2004b, p. 52) Because opportunity recognition is a cognitive process, according to Baron (2004b), people can learn to be more effective at recognizing opportunities by changing the way they think about opportunities and how to recognize them. [Opportunity Evaluation-] When evaluating entrepreneurial opportunities---sometimes called idea screening---an effective process involves assessing the various venture ideas being considered by applying different levels and types of analyses. Societal Level--- At Societal level, it is crucial to understand PESTEL factors; more specifically the trends affecting these factors. PESTEL Analysis is an analytical tool for business planning, incorporating strategies and programs to meet desired goals and objectives. Originally, coined as PEST analysis or ETPS analysis. Later on it was revised with the inclusion of Environmental and Legal influences which are also relevant to evaluate external environment. Industry Level- it is pertinent to apply Porter's Five Forces Model; or any other tool designed to evaluate industry level factors. This analysis focuses on the economic sector in which the desired business venture will operate. [Porter's Five Forces Model] 1\. Bargaining power of buyers - refers to the pressure consumers can exert on businesses to get them to provide higher quality products, better customer service, and lower prices. 2\. Bargaining power of suppliers - refers to the pressure suppliers can exert on businesses by raising prices, lowering quality, or reducing availability of their products. 3\. Threat of New Entrants- refers to the threat new competitors pose to existing competitors in an industry. Therefore, a profitable industry will attract more competitors looking to achieve profits. If it is easy for these new entrants to enter the market -- if entry barriers are low -- then this poses a threat to the firms already competing in that market. More competition -- or increased production capacity without concurrent increase in consumer demand -- means less profit to go around 4\. Threat of Substitute product or services --Porter"s threat of substitutes definition is the availability of a product that the consumer can purchase instead of the industry's product. A substitute product is a product from another industry that offers similar benefits to the consumer as the product produced by the firms within the industry. According to Porter's 5 forces, threat of substitutes shapes the competitive structure of an industry. 5\. Rivalry among existing competitors- The intensity of rivalry among competitors in an industry refers to the extent to which firms within an industry put pressure on one another and limit each other's profit potential. If rivalry is fierce, then competitors are trying to steal profit and market share from one another. As a result, this reduces profit potential for all firms within the industry. Usually in the industry level, the company prepared their company profile wherein incorporated thereto are their vision, mission, goals and objectives. The people working in the organization and its profile, products or services being offered in the public, financial position among others. [Market Level-] At the market level, use a tool to generate information about the part of the industry in which your business will compete. This tool could be a Market Profile Analysis [Firm Level-] both the internal organizational trends and the external market profile trends should both be analyzed. There are several tools for conducting an internal organizational analysis; a sample is a SWOT Analysis: [Strengths of the Hotel Industry]. Provides Safe Abode Away from Home Contributes to the Local Economy Its a Mammoth of an Employer High-Profit Margin [Threats to the Hotel Industry] Alternative lodging like Airbnb has already posed enough threat to the hotel industry. Boutique Alternatives Prevalent Conditions Worse-Than-Expected Economies [Business Opportunity Trends in Tourism and Hospitality] Lodging: the demand for non-traditional lodging has created a streamlined method for landowners to generate additional streams of revenue Ride Sharing: Companies like Uber and Grab function as an excellent alternative to traditional shuttle and taxi systems Guided Tours: Who better to help someone get acquainted with and explore and new town or region then someone who has lived there for a substantial amount of time? Delivery Service: Delivery service can be an inexpensive way to break into the hospitality industry and offers several entry points, Food Panda and Lala Food offers customers to call for delivery of their chosen food craving and paid upon delivery. [Methods of venturing into business] 1\. Small Business - refers to one which is independently owned and operated and which is not dominant in its field of operations. [Types of small business] 1.1. [Manufacturing business] - refers to one involved in converting raw materials into products needed by society. E.g. printing press, garments manufacturing, furniture shop, etc. 1.2. [Service oriented business] Classification a\. Business Services b\. Personal Services c\. Repair Services d\. Entertainment and Recreation e\. Wholesaling f\. Retailing g\. General Construction Firm 2\. Franchising - Arrangement where one party (the franchiser) grants another party (the franchisee) the right to use its trademark or trade-name as well as certain business systems and processes, to produce and market a good or service according to certain specifications. The franchisee usually pays a one-time franchise fee plus a percentage of sales revenue as royalty, and gains [Hybrid Business -] are companies that may be classified in more than one type of business. A restaurant, for example, combines ingredients in making a fine meal (manufacturing), sells a cold bottle of wine (merchandising), and fills customer orders (service). [ ] Nonetheless, these companies may be classified according to their major business interest. In that case, restaurants are more of the service type -- they provide dining services. [Forms of Business Organization] These are the basic forms of business ownership: 1\. Sole/ Single Proprietorship- is a business owned by only one person. It is easy to set-up and is the least costly among all forms of ownership. The owner faces unlimited liability; meaning, the creditors of the business may go after the personal assets of the owner if the business cannot pay them.The sole proprietorship form is usually adopted by small business entities. 2\. Partnership- is a business owned by two or more persons who contribute money or property into the entity with the intention of dividing the profits among themselves. In general partnerships, all partners have unlimited liability. In limited partnerships, creditors cannot go after the personal assets of the limited partners. 3\. Corporation- is a business organization that has a separate legal personality from its owners. Ownership in a stock corporation is represented by shares of stock. The owners (stockholders) enjoy limited liability but have limited involvement in the company\'s operations. The board of directors, an elected group from the stockholders, controls the activities of the corporation. [some other types of organizations that are common today:] [Limited Liability Company] Limited liability companies (LLCs) in the USA, are hybrid forms of business that have characteristics of both a corporation and a partnership. An LLC is not incorporated; hence, it is not considered a corporation. Nonetheless, the owners enjoy limited liability like in a corporation. An LLC may elect to be taxed as a sole proprietorship, a partnership, or a corporation. Cooperative- is a business organization owned by a group of individuals and is operated for their mutual benefit. The persons making up the group are called members. Cooperatives may be incorporated or unincorporated. Some examples of cooperatives are: water and electricity (utility) cooperatives, cooperative banking, credit unions, and housing cooperatives.