Despite its size, it accounts for 4.9 percent of the total population and 10 percent of the exports. It also has more than one million tourists, which means that about half of the country’s visitors also choose to come to Cebu.
Cebu’s large population means that it could support a good number of small and medium enterprises (SMEs). In fact, long before the last population count in 2007, at the time when Cory Aquino began her presidency in 1986, Cebu already had close to 3,000 small and medium enterprises with estimated assets of about P5.5 billion, sales of P12 billion and total employment of about 180,000 workers. This was reported in a study by the Cebu office of the Center for Research and Communication (now University of Asia and the Pacific). With more openness that came with the Cory administration and membership of the Philippines in the World Trade Organization in 1995, these numbers must be much larger by now.
The CRC study identified the five key SMEs in Cebu as: furniture making, food processing, garments, gift, toys and fashion accessories (GTFAs) and house wares and metalworking. Furniture, GTFAs and house wares were touted as Cebu’s export winners because of their high export potential and strong backward linkages through subcontracting. The study found that the intensity of subcontraction was as high as one contractor to 100 sub-contractors in some firms engaged in fashion accessories and 1:15 in some rattan furniture firms. The average was 1:4 in furniture production, 1:3 in fashion accessories, and 1:2 in garments.
Subcontracting is a business model employed by industries in Cebu that allowed them to meet their demand by tying up with home or cottage-based producers in the production of certain parts of a product or the early and rough stage of the production process using unskilled or semiskilled workers living in Cebu. The system is no different from the practice of Japanese manufacturers that subcontract some of production tasks to many small producers except that in Cebu most of the subcontractors belong to the informal sector.
Being informal means that Cebu’s subcontractors are unorganized or operate outside of the law that governs business operation. Unregistered, they do not pay taxes or comply with government requirements relating to the workplace, working condition and wages of the workers.
Why the informality? There were many reasons according to the CRC study. One was the lack of time to register the business. Another was the lack of money to pay the cost of registration. Red tape was also mentioned as well as the confusing procedure in registering a business. Business was also too small to be registered. And finally, there was a problem of the business being highly temporary in nature.
While very dynamic and flexible, Cebu’s subontractors suffered from a number of organizational, management, financial, production and marketing problems, according to the CRC report. Home and cottage industry proprietors were wanting in business management skills, turnover of workers was high and earnings, which depended on orders were irregular. Quality control was poor and compliance with order specifications was weak. Equipment was inadequate and materials were poorly handled. The cost of materials was also high. Deadlines for completion of the products ordered were often not met. Delayed payments of completed orders and lack of access to capital also compounded the problems faced by the subcontractors. The same problems may exist now for many of the subcontractors that remain informal.
With so many existing firms, the competition among Cebu’s small and medium enterprises is intense. Analyzing industry competition, however, does not only mean looking into the rivalry of existing firms.
Another angle that should be looked into is the threat of entry of new competitors. The nature of small and medium industries in Cebu is such that the entry of new business is easy on account of the low level of capital and technology required to start a new business. The coming of a substitute product is another threat and this is true for products that are intended to meet the varying tastes of the final users.
In Cebu, this is also compounded by the usual practice of pirating product designs or skilled workers.
Another angle to consider in industry competition is the power of buyers. Here, foreign buyers or their agents are more in a position to influence the price and other terms of business. Along with the influence of buyers is the power of suppliers.
Cebu SMEs lacks many of the materials that they need for production. Thus, they are also at the mercy of their suppliers, which partly explains the high production costs.
When in Cebu City, please visit gregmelep.com for your real estate and retirement needs.
Cebu’s large population means that it could support a good number of small and medium enterprises (SMEs). In fact, long before the last population count in 2007, at the time when Cory Aquino began her presidency in 1986, Cebu already had close to 3,000 small and medium enterprises with estimated assets of about P5.5 billion, sales of P12 billion and total employment of about 180,000 workers. This was reported in a study by the Cebu office of the Center for Research and Communication (now University of Asia and the Pacific). With more openness that came with the Cory administration and membership of the Philippines in the World Trade Organization in 1995, these numbers must be much larger by now.
The CRC study identified the five key SMEs in Cebu as: furniture making, food processing, garments, gift, toys and fashion accessories (GTFAs) and house wares and metalworking. Furniture, GTFAs and house wares were touted as Cebu’s export winners because of their high export potential and strong backward linkages through subcontracting. The study found that the intensity of subcontraction was as high as one contractor to 100 sub-contractors in some firms engaged in fashion accessories and 1:15 in some rattan furniture firms. The average was 1:4 in furniture production, 1:3 in fashion accessories, and 1:2 in garments.
Subcontracting is a business model employed by industries in Cebu that allowed them to meet their demand by tying up with home or cottage-based producers in the production of certain parts of a product or the early and rough stage of the production process using unskilled or semiskilled workers living in Cebu. The system is no different from the practice of Japanese manufacturers that subcontract some of production tasks to many small producers except that in Cebu most of the subcontractors belong to the informal sector.
Being informal means that Cebu’s subcontractors are unorganized or operate outside of the law that governs business operation. Unregistered, they do not pay taxes or comply with government requirements relating to the workplace, working condition and wages of the workers.
Why the informality? There were many reasons according to the CRC study. One was the lack of time to register the business. Another was the lack of money to pay the cost of registration. Red tape was also mentioned as well as the confusing procedure in registering a business. Business was also too small to be registered. And finally, there was a problem of the business being highly temporary in nature.
While very dynamic and flexible, Cebu’s subontractors suffered from a number of organizational, management, financial, production and marketing problems, according to the CRC report. Home and cottage industry proprietors were wanting in business management skills, turnover of workers was high and earnings, which depended on orders were irregular. Quality control was poor and compliance with order specifications was weak. Equipment was inadequate and materials were poorly handled. The cost of materials was also high. Deadlines for completion of the products ordered were often not met. Delayed payments of completed orders and lack of access to capital also compounded the problems faced by the subcontractors. The same problems may exist now for many of the subcontractors that remain informal.
With so many existing firms, the competition among Cebu’s small and medium enterprises is intense. Analyzing industry competition, however, does not only mean looking into the rivalry of existing firms.
Another angle that should be looked into is the threat of entry of new competitors. The nature of small and medium industries in Cebu is such that the entry of new business is easy on account of the low level of capital and technology required to start a new business. The coming of a substitute product is another threat and this is true for products that are intended to meet the varying tastes of the final users.
In Cebu, this is also compounded by the usual practice of pirating product designs or skilled workers.
Another angle to consider in industry competition is the power of buyers. Here, foreign buyers or their agents are more in a position to influence the price and other terms of business. Along with the influence of buyers is the power of suppliers.
Cebu SMEs lacks many of the materials that they need for production. Thus, they are also at the mercy of their suppliers, which partly explains the high production costs.
When in Cebu City, please visit gregmelep.com for your real estate and retirement needs.
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