Despite the lifting of the enhanced community quarantine (ECQ) in Metro Manila, majority of the micro, small, and medium enterprises (MSMEs) are still temporarily closed or are operating at decreased capacity—an indicator of the difficulties they are facing in getting back to their business operations according to the recent survey conducted by the United Nations Development Programme (UNDP) on the impact of COVID-19 on MSMEs in the Philippines.

MSMEs comprise 99.5% of business establishments in the Philippines and are employing approximately 63% of the country’s workforce. In the past years, MSMEs were responsible for 40% of the country’s Gross Domestic Product (GDP). During the second quarter of 2020 and almost four months since the community quarantine was put in place, the country’s GDP sank to 16.5% as the Philippines experienced recession due to the COVID-19 pandemic.

In the first MSME online forum organized by the Philippine Disaster Resilience Foundation (PDRF) and UNDP Philippines through SIKAP (Synergizing Recovery Initiatives, Knowledge, and Adaptation Practices for MSMEs), the results of the survey were presented to more than 170 MSME owners and development organizations.

The survey also showed that out of the 285 respondents, 81% reported experiencing low consumer demand. This low demand alongside shortages related to transportation and logistics, and lack of financing capacity were cited as the primary challenges of MSME owners in resuming their operations.

Since the implementation of community lockdowns, MSMEs continued to suffer from disrupted cashflow and continuing expenses, which led to income losses. Close to 80% of the respondents reported a reduction in their average monthly income from April to June compared to their average monthly income prior to the pandemic. While 20% of the respondents tried to retain employees with full pay despite income losses, their cashflow was so severely affected that 25% of them began to lay off employees.

“We are in the middle of a once in a lifetime medical emergency. I know you are worried about your health, scared to open your businesses. But for the sake of our families and ourselves, we have to take that step and reopen while maintaining safety standards. We have to find a way to keep going as long as we need to,” said Butch Meily, President of PDRF.

MSMEs comprise 99.5% of business establishments in the Philippines and are employing approximately 63% of the country’s workforce. In the past years, MSMEs were responsible for 40% of the country’s Gross Domestic Product (GDP).

To address the adverse impacts of the COVID-19 pandemic, MSMEs started implementing adaptive business measures. Among which are digitalization or the use of online platforms for their business transactions, cost reduction, diversification of products and services, utilization of non-cash payment options, and allowing employees to work from home.

However, despite these adaptive measures, majority of the MSMEs still need assistance to recover from their losses. At least 60% of the respondents reported that they have not received any assistance from any stakeholder (gov’t, private sector, NGOs, and others) yet. Among the most pressing needs of MSMEs are access to credit facilities, tax breaks, and deferred loan payments.

“MSMEs play a crucial role in the Philippines’ efforts to recover from the crisis brought about by this pandemic. UNDP will continue to support Government and its development partners to facilitate their sector representation in policy dialogues and program planning so as to capitalize on available solutions that could prevent further closures of MSMEs. We are also working very closely with the private sector to provide online resources and to ensure that all MSMEs can get the right access to e-commerce trainings to support their digital transition. Digital infrastructure in the country is key to enable the development of a new market space online,” said Enrico Gaveglia, Officer-in-Charge of UNDP Philippines.

The result of the survey intended to provide data-driven recommendations that can help the Inter-Agency Task Force come up with more effective policies and programs that are responsive to the immediate and long-term needs of MSMEs.

Majority of the MSMEs still need assistance to recover from their losses. At least 60% of the respondents reported that they have not received any assistance from any stakeholder (gov’t, private sector, NGOs, and others) yet. Among the most pressing needs of MSMEs are access to credit facilities, tax breaks, and deferred loan payments.

Among these recommendations were the integration of MSMEs in public sector procurement, a balanced and complementing mix of monetary and fiscal policies including wide-reaching government guarantees for MSME lending that will support overall spending, and mechanisms to increase household consumption in the country. Other recommendations included addressing the challenges in public transportation to ensure safe and efficient mobility of people, products, and services, and the strengthening of supply chain management by integrating more local suppliers.

SAP SE unveiled findings for the study Digital Resilient, and Experience-driven: How Small and Midsize Organisations Can Prepare for the New Economy. The study highlights how small and midsize enterprises (SMEs) in Asia-Pacific (APAC) are uniquely positioned to adapt and thrive in the dynamic and distributed post-COVID-19 business environment.

Conducted in collaboration with Oxford Economics, the study also delved into the priorities, challenges, and digital maturity of SMEs in the Americas, Europe, and APAC. Of the total 2,000 respondents, 832 respondents were from the following APAC markets: Australia, China, India, Japan, New Zealand, Philippines, Singapore, and South Korea. A section detailing answers from 240 respondents on the impact of the COVID-19 pandemic was also added to the survey mid-fieldwork.

Adapting To The New World Of Work

According to the 240 that responded to the series of COVID-19 questions, APAC SMEs are well positioned to adapt to a remote working environment by taking swift actions to implement and adjust remote work arrangements for employees in response to the onset of the COVID-19 pandemic. 77% reported that they adjusted remote work arrangements for employees in response to COVID-19, as compared to respondents in Europe (75%) and the Americas (71%).

Additionally, 61% of APAC SMEs surveyed created remote work set-ups for employees during this period, while 69% invested in IT and collaboration solutions to support remote access and/or online learning. Interestingly, 10% of APAC SMEs reported that the pandemic has no impact on their ability to accommodate remote work and maintain employee productivity.

On top of supporting business continuity during this period, many APAC SMEs are also actively exploring new channels to get their products and services to customers (66%, vs. 64% in the Americas and 59% in Europe) and developing new products and service offerings (46%, vs. 40% in the Americas and 49% in Europe). 

“SMEs across the region—like their counterparts around the world—have certain advantages over larger competitors in terms of agility and closeness to the customer,” said Edward Cone, Editorial Director of Thought Leadership and Technology Practice Lead at Oxford Economics. “Yet even before the pandemic, SMEs in APAC also faced meaningful challenges in keeping up the pace of digital transformation.”

Lastly, it was revealed that COVID-19 has significantly impacted APAC SMEs’ ability to compete with larger companies within the same industry, with 45% of APAC SMEs reporting that the pandemic has had a significant effect on their operations and strategies in this area. COVID-19 has also affected the ability to operate at full capacity (45%), the ability of the supply chains to keep up with demands (40%), and the ability to keep existing customers (40%). Some respondents reported that they had to completely restructure business strategy and operations in these areas to mitigate the impact of the pandemic

Anticipating The Road Ahead

Prior to the COVID-19 outbreak, SMEs in the region reported being optimistic about their long-term prospects. Many APAC SMEs expect that over the next three years, their market share (62%), budget/revenue (76%), number of full-time employees (59%), and profitability (78%) will increase somewhat or substantially.

61% of APAC SMEs surveyed created remote work set-ups for employees during this period, while 69% invested in IT and collaboration solutions to support remote access and/or online learning. Interestingly, 10% of APAC SMEs reported that the pandemic has no impact on their ability to accommodate remote work and maintain employee productivity.

Looking ahead to the next three years, APAC SMEs are prioritising improving the customer experience (40%), growth (38%) and attracting new customers (28%). APAC SMEs believe that the key to providing high-quality customer experience lies in high-quality products and/or services (70%), fast and convenient delivery (64%) and competitive pricing (62%), with the customer-service business function bearing the most responsibility for delivering those experiences (cited by 70% of APAC respondents). Upgrading analytics on customer data is viewed as a go-to strategy to improving customer experience:  28% already have done this across the organisation, and 52% have started to. 

Staying The Course On Digital Transformation

With technology set to play an increasingly critical role in helping APAC SMEs achieve business success in the new digital environment, the study also took a closer look at digital maturity levels of these businesses across the region. Many APAC SMEs say they have made moderate progress toward digital transformation (39%), and 21% have made substantial progress or completely transformed; within three years, 19% expect to have completely transformed. In terms of technological adoption, HR/Talent management software is furthest along (66%), followed by Governance and Cybersecurity software (63%) and Finance and Risk management software (59%). Respondents reported that these technologies are either in use in some applications/projects or are already in use at scale.

Mobile devices and mobile business process enablement, and business management solutions (ERP software) share the top spot in terms of pilot implementation, and APAC SMEs are actively considering emerging technologies, AI/ML and Internet of Things (IoT) as their main investment priority.

Obstacles To Overcome

The road to success does, however, bring challenges. Today, APAC SMEs consider the upskilling/reskilling of the current workforce (30%), lack of coordination between different departments (29%), and inability to gain insights from data (28%) as key internal challenges. In terms of external challenges, APAC SMEs cite changing customer wants and needs (40%), competition from larger organisations (39%), and adapting to a rapidly changing marketplace (27%) as obstacles to their business success.

“Today’s new normal requires businesses to pivot and adapt with speed. SMEs in the region seem to understand that the sense of urgency to digitally transform their businesses will give them an advantage through the pandemic and beyond,” said Claus Andresen, SVP & Head of General Business (SME) and Emerging Markets Growth, Asia Pacific & Japan. “With the adoption of an intelligent enterprise strategy, SMEs can establish a digital core that will power the entire organisation, embedding data-driven insights and decision-making processes across the business. This is crucial in enabling business agility, further strengthening the ability of SMEs to adapt to dynamic market conditions.”

“I am confident SMEs in the region will be able to emerge stronger, having forged closer bonds with customers and employees while developing innovative services and products that will put them on a strong growth trajectory as the world economy recovers,” concluded Andresen.

Visa launched Where You Shop Matters to encourage consumers to support local businesses while helping SMEs to go digital following the onset of COVID-19. The initiative is part of Visa’s broader small business strategy and follows commitments the company has made to support 10 million small and micro businesses in the Asia Pacific, and a global commitment from the Visa Foundation of USD210 million to provide COVID-19 emergency relief for the small business sector.

As part of the Where You Shop Matters initiative, Visa has partnered with Shopee, the leading e-commerce platform in Southeast Asia and Taiwan, to help support thousands of local small businesses who are selling on Shopee. Visa and Shopee will be creating campaigns to enable Visa cardholders to enjoy discounts when they shop at these local merchants.

“We introduced Where You Shop Matters to support our small businesses in the Philippines. The impact of COVID-19 for these businesses along with shifting consumer behaviors to eCommerce reinforced the need for Visa to launch Where You Shop Matters. Furthermore, the partnership with Shopee will help us support thousands of local businesses in the Philippines. We are confident that Filipinos will help support the local economy, especially since our study showed that 95 per cent of Filipino consumers will purchase from local retailers to support small business recovery,” said Visa Country Manager for the Philippines & Guam, Dan Wolbert.

“The pandemic has accelerated several years’ worth of change into the span of a few months, and this rapid acceleration of the shift to digital payments also means that businesses need to go through a digital transformation and adapt to changing consumers’ behaviors to do well.”

“We are happy to partner with Visa to launch the Where You Shop Matters campaign to help small business owners go digital. Shopee commits to offer our sellers and MSMEs a more secure, seamless, and rewarding way to do business online, and we will continue to explore new ways to help them succeed online” says Martin Yu, Associate Director at Shopee Philippines.

The Visa study also showed that 77 percent of Filipino consumers believe it is important for local retailers to have an online presence. To encourage SMEs to go digital, Visa will be providing them with a Visa eCommerce Starter Kit to help them start, manage, and grow their online storefronts. Visa is partnering with BigCommerce to provide onboarding support and special discount rates for SMEs to sign up and start selling online. SMEs can also benefit from a variety of offers, including Office 365 business packages and cashback on Google Ads to help them get their online business up and running. For SMEs with physical stores, they can order free Visa POS signage to build trust with consumers.

“The pandemic has accelerated several years’ worth of change into the span of a few months, and this rapid acceleration of the shift to digital payments also means that businesses need to go through a digital transformation and adapt to changing consumers’ behaviors to do well,” added Dan.

Said Jowee Alviar, co-Founder of Team Manila, one of the six marquee merchants in the Where You Shop Matters campaign, ” We’re happy to be featured among the local brands in Visa’s #WhereYouShopMatters campaign. It is vital for TeamManila to reach our customers wherever they are, be it through online shopping portals or our website. We can show them the new designs of our collection, answer their inquiries, and fulfil their orders easily and securely through card payments using Visa, at the convenience and comfort of their own homes.”