The result of the GEM Philippines 2006-2007 National Report, as cited by CVJ, is baffling, to say the least. In the study, GEM Philippines states that the distribution of entrepreneurs by socio-economic status is as follows: Class ABC+ 7%, Class C- 19%, Class D 54%, Class E 20%.

Results show that four out of 10 Filipinos (39.2%) aged 18 to 64 have businesses (see Figure 3) and the Philippines ranks second among the 42 countries surveyed by GEMfor 2006. The country is only second to Peru among middleand low income countries and ranks first among benchmarked countries in Asia.

This appears to state that Filipinos are, in fact, business-oriented. This is in stark-contrast to the often maligned notion of the Filipino as culturally biased against entrepreneurship, and having a seek-employment mentality as opposed to a business-oriented culture.

An important side-note, of course, is that the study most likely includes the Filipino Chinese in its demographic, although the large representation of the D & E classes (as opposed to the local Filipino Chinese community that mostly belongs to the ABC classes) may indicate that there is a majority “native” Filipino sample there.

Composition

One important aspect of the study is the composition of these enterprises:

Five percent (5%) of Filipinos own nascent (start-up) businesses, while 16% are managing new businesses and 20% are established business owners. More than half (57%) of these businesses are within one to 10 years of age. However, most of these businesses are small in scale and scope, being micro enterprises generally venturing in the consumer services sector.

Emphasis mine.

Aside from the fact that a big chunk of these businesses are young (at 1 to 10 years), they are also mainly micro enterprises — businesses at their infancy and whose sustainability is yet to be proven.

The study also implies that part of its sample are members of the underground economy, ergo, businesses that are not registered with the Department of Trade and Industry nor their respective city governments — thus indicating small scale/one-to-three man operation businesses which include sari-sari stores, ambulant vending, cellfone repair, etc.

Taking these factors into account, the demographic exhibits an ambiguity if taken in the context of how effective entrepreneurship is in curbing poverty. The question becomes: are Filipinos starting small but will move towards more established businesses, or are they staying at the single-person operation level that is, essentially, unsustainable?

I don’t see any clear answer to this question based on the study.

The difference between a Business Owner and the Self Employed and its impact on sustainability

One other factor of sustainability is pinned on the difference between a business owner and a self-employed person. Robert Kiyosaki* explains this in his book Rich Dad Poor Dad. This is concisely explained in the anecdote in his article Building a Pipeline to Wealth.

Essentially, Kiyosaki differentiates income earners into four types:

• Employee – a person who works for someone else
• Self-Employed or Small Business Owner – a person owns his job and is his own boss
• Business owner – a person owns a system of making money, rather than a job to make money
• Investor – a person who spends money on businesses or other financial instruments to earn even more money

I do not have the precise statistics to prove it, but my general impression is that the fact that the majority of Filipino businesses being micro enterprises mean that they’re one-man operations. This fact has major reprecussions to the sustainability of a business — if the self-employed person gets sick, or is faced with an emergency, the business grinds to a halt.

This is as opposed to a business where an established system sustains the operations despite the fact of the absence of the business owner. It also allows the business owner to focus on issues like expansion, operational efficiency, improving profitability, etcetra — the necessary ingredients into creating a major enterprise.

Turning small-time to big-time

Many of the taipans as we know them today started off as self-employed but were able to successfully move to the business owner stage, and eventually to investor. Not everyone can make this jump however — there is a large gap between the self-employed and business owner stages in that while everyone can put up a business, not everyone can establish a system.

The latter is the reason why franchising is becoming such a hot item in the market — franchises are essentially systems for sale, and gives a budding entrepreneur the opportunity to bypass the self-employed stage totally. However, this is mostly only available to the middle and upper classes, as initial investments required for franchises are prohibitive (some might say impossible) for the lower classes to bear.

There are private efforts to be able to help turn small-time operations from the C, D and E classes into more profitable, systemic operations. One example is Hapinoy, an effort to create a unified chain of sari-sari stores with a standardized system which also provides microfinancing to small business owners. With the effort at its infancy, it remains to be seen if these efforts will become successful.

Another area that can be improved to help improve businesses is technology. Personal computers have become both cheap and ubiquitous enough that many small business owners can utilize such systems to automate tasks that would be otherwise burdensome to entrepreneurs who cannot yet hire employees or external services for various tasks.

Conclusions

While the GEM Philippines National Report proves as a helpful set of indicators vis-a-vis the state of entrepreneurship in the Philippines, it still doesn’t answer the question as to how successful Filipinos are in their business forays. What it does tell us is that there are more Filipinos willing to try entrepreneurship out, as evidenced by the large chunk of 1 to 10 year old businesses in the general demographic.

I believe it’s unfair to dismiss entrepreneurship by virtue of the distribution of businesses by socio-economic status: this demograph clearly shows where the business owners mostly are, not where they are eventually headed. In this respect, more efforts have to be taken to be able to make sure that the majority business owners — those who are from Class D and E, are helped out in heading towards the correct direction in their quest to improve their income and eventually join the ABC classes.

The question now becomes, how do we educate and enable the D and E entrepreneurs considering that creating systems (and essentially, jumping from self-employed to business owner) might be prohibitive to them in terms of income? How do we even raise awareness to those oblivious to the fact that there is a need to move into more systemic operations so as to become bigger operations?

Suggestions are welcome. :)

* NOTE: There are many people who are skeptical of Robert Kiyosaki (me included — primarily because of his involvement in MLM) but the principles he described above are fundamental enough to stand on their own despite questions on the author’s credibility.

Fatal error: Call to undefined function p75HasVideo() in /homepages/39/d169067170/htdocs/voices/wp-content/themes/NewFV/single-default.php on line 57