Integrating SMEs into the East Asian Region: Philippines

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The paper aims to examine the characteristics and factors that constrain the growth of SMEs that are operating within and outside production networks. Based on a survey of 101 firms, the analysis shows that SMEs are not homogeneous. While they share certain characteristics such as age, Filipino ownership, and foreign equity share; they differ in terms of performance export intensity, interest rates on borrowings, major sources of finance, and other economic indicators. The results also show that participation in IPNs benefits SMEs particularly parts and components makers in the electronics and auto industries. In terms of performance, IPN firms have higher mean growth rate and mean labor productivity than non-IPN firms. In terms of barriers to growth, IPN firms are primarily concerned with product and price barriers and difficulties in establishing and maintaining trust with business partners while non-IPN firms’ major concerns are tax, tariff and nontariff barriers and the country’s deteriorating business environment. Two themes dominate SMEs’ concerns on the type of assistance needed. For IPN firms, financing assistance would be crucial while for non-IPN firms, technology development would be the most important.