Making it Big by Starting Small
September 8, 2005
Despite the tough market conditions and the lack of government support, a number of local small and medium enterprises are flourishing, proving that SMEs are indeed the Philippine economy’s real engine of growth.
“IN A NATION that is in crisis, entrepreneurs thrive,” Alexis Pineda, general manager of Chemworld Marketing Corp., says. “When companies close, people lose jobs. But if you help them by providing business opportunities, the combined power of each of the small entrepreneurs can be greater than that of one or two major companies.”
That Pineda laments the greater emphasis given to multinational corporations (MNCs) is understandable. “MNCs no longer contribute that much to the whole economy because there are just a few of them,” he notes. According to statistics, 99.6% of the total establishments in the country are small and medium enterprises (SMEs).
According to Russelle Sagaran-Trinidad, product manager of SME.com.ph, a Web portal designed to provide SMEs access and linkage to the global economy through the Internet, Filipino SMEs differ from other SMEs in the world because they account for productivity not out of bigger spending, but on the extraction of each dollar spent. “It's actually having the mindset of ‘think big profits but small expense,’” she says.
The Filipino SMEs’ fundamental power is “generally resource-based – tapping the richness in the natural resources of our country, and using/engendering the skills and creativity of our people to produce goods that aren't import-dependent, and not falling into the mercies of global fluctuations,” she explains. Nonetheless, when the goods are exported, they greatly contribute to the coffers of the national treasury.
Lack of Government Support
SMEs, by nature, are risky propositions in the eyes of commercial banks and other financial institutions. Thus, according to Trinidad, most of the SMEs that SME.com.ph deals with are faced by the same problems, mainly financial in nature.
The Philippine government has actually set up a number of agencies to implement certain policies for facilitating assistance to SMEs. Among the latest of these is the SME Unified Lending Opportunities for National Growth (SULONG), which was instituted in 2002 to lower the cost of borrowing of SMEs, and to streamline the lending activities of government financial institutions, among others.
For 2004, SULONG extended some P27.05 billion in approved loans to SMEs, benefiting over 15,800 small and medium-sized companies nationwide. This was P3.05 billion bigger than the previous year’s P24 billion. The program is expected to lend up to P600 billion by 2010.
However, except for the list of beneficiaries provided by SULONG and affiliated groups, it remains hard to find SMEs that have actually benefited from government’s efforts, though not for the lack of trying, but reflective, perhaps, of the government’s lack of capability to support their large number.
Rommel T. Juan, press relations officer of the Association of Filipino Franchisers Inc. (AFFI), looks at this issue differently. “Generally, you shouldn’t rely on the government,” he says. “You shouldn’t wait for the blessings to come to you. Instead, you should do something to get them.”
Pineda agrees, saying: “A good quality of entrepreneurs is perseverance – the more problems they face, the more dynamic they become.”
“I believe that SMEs are the hope of the country,” Juan says. “I’m so happy that entrepreneurship is now an ‘in’ thing. There was a time when entrepreneurship wasn’t even heard of. It is my belief that the more entrepreneurs we have, the more people we will have in the middle class. And if we raise the level of the people to middle class, then we won’t have to rely on the government so much.”
In the following pages, Enterprise profiles some selected SMEs that inspire hope for a brighter, entrepreneursup-driven future for the Philippines:
Binalot Fiesta Foods Inc.: Cultivating Pinoy Pride Through Food
“Binalot is more than just a business, it’s a mission,” says AFFI’s Juan, who is also president of Binalot Fiesta Foods Inc. “We want to be the No. 1 truly Pinoy fastfood. After all, how can you be more Pinoy than binalot (wrapped food)?”
Such lofty goals from a company that, amazingly, started out simply for fun.
In 1996, a few months after graduating from college, Juan and his brother, Raffy, thought of starting a business. “Immediately we thought of food – but we didn’t want just another burger joint,” Juan recalls. They settled on the Filipino concept of wrapping baon (take-away food) in banana leaves – a practice their mother used to do every time they traveled to their farm in Cavite. “We thought, why don’t we offer that and call it Binalot?”
Initially, it was more “like a game – we were basically playing,” Juan says. Neither of the brothers could cook, so their family’s chef did that for them. When Aileen Anastacio, a graduate of the California Culinary Academy, joined the group, the business started getting serious.
From the kitchen of the brothers’ condominium unit, Anastacio daily prepared 20 assorted meals (initially limited only to adobo, longganisa, and tocino), which the three sold to their friends. “We had allocations. If you can’t sell it, you buy it yourself. So we were forced to sell,” Juan says.
The response was better than anticipated so that a few months later, the trio had to hire a cook and a girl to answer phone calls, since “we were basically just delivering food then.”
Binalot’s “guerilla operation” at that time was to focus delivery on a specific building. By the second week of operations, they already bought a motorcycle and hired a delivery boy. And before they knew it, they were already delivering to the whole of Makati.
The company, then described as the darling of the delivery industry, suffered drawbacks during the Asian financial crisis in 1997. “Companies closed down, and our customers started to bring their own baon to work,” Juan says. “That was a dark time for us because delivery was slow, and (had it continued) we would have gone under.”
Just in time, Shangri-La Mall offered Binalot a space in its food court. “We were apprehensive, but we decided to go for broke. If it didn’t work, we planned to close,” Juan says. When Binalot opened, it again got a tremendous response, so they were back in business.
With a start-up capital of only P50,000, “it’s hard to tell how much we’re worth now,” Juan says. But Binalot has 15 branches, which will expand to 18 in the next two months. And they now have 50 to 65 employees in the main company, plus 32 in eight franchised outlets. “That’s our measure of growth,” he says.
Not that the growth is stopping. From only six outlets in 2003, the number grew to 12 in 2004 – a growth attributed to franchising. “While taking my master’s degree in AIM (Asian Institute of Management), I realized we had a brand,” Juan says. “People believed in our product even more than I did.”
Franchising is, in fact, now considered as Binalot’s main growth strategy, though Juan admits he wants to keep a tight rein on the business to be able to continue monitoring the quality of its offerings.
With all his experiences with Binalot, Juan believes that SMEs are the “real hope of the country.” Generally, however, even budding entrepreneurs shouldn’t depend on help from the government, he advises. “At Binalot, we basically depend on ourselves,” he says.
For Juan, Binalot’s success lies on its Filipino authenticity. “I am hard pressed to find any direct competition (sans copycats),” he says. “Our vision for the company is to be the No. 1 truly Filipino fastfood in the country, which promotes Filipino humor, values, traditions. And we’ll get there.”
Sylphs and Other Faeries Corp.: Using Magic to do Business
Early in the 1980s, three fortune-tellers supposedly told Peggy Bose, owner of Sylphs and Other Faeries Corp., that she had dwarfs in her backyard. If she looked after them, they’d make her rich. “I thought, wait a minute, if I won’t get rich while employed, then I have to have my own business,” she says with a laugh.
So Bose quit her job as a manager, which was paying her P8,000 a month, to open her own business in 1990, investing between P50,000 and P60,000. With the help of a chemist friend, who was willing to prepare the concoctions for her business, the amount was spent on only one product, called Sugar and Spice, a set of three colognes in a canister which she sold for P50 each. “I made P600,000 in only three months,” Bose says.
The feat, for me, was especially satisfying, according to Bose, because “I was a bit concerned (that my venture would fail) and I was worried where I would get the money to take care of the daily needs of my family. So I was elated by the success of the company.”
For the following years, Bose focused on direct selling, which was also what forced her to add more products to sell. “In direct selling, you should have a complete line of products,” she says. So after Sugar and Spice, which targeted what was still an emerging teen market in the 1990s, “everything else followed, including Baby’s Breath to target those in their 20s, men’s cologne, shampoo, conditioner, make-up, facial wash, and so on, until it became a complete line.” By 2000, the company was already supplying the toiletries used by Philippine Airlines, and was acting as a subcontractor of Mondragon Industries.
Interestingly, Bose failed to see the benefits of retailing her products. “I was supplying SM, Landmark, and other department stores before,” she says. But more enticed by direct selling, she stopped retailing only after eight months of trying. “In hindsight, I shouldn’t have left retail,” she says, regretting a missed chance of probably making it even bigger, considering she was one of the pioneers in the industry.
Although her direct selling business was still doing well, “it reached a point when we started having problems with the receivables already, so I thought I better go back to retail,” Bose says.
Thus Faeries Faeries, the store, was born.
Though the core of the business remains the same, this time, naming the products after supernatural creatures was a move to “prettify” them.
As an SME, the problems are aplenty, though so are the innovative solutions.
“I couldn’t have my own mold made because that would have been impractically expensive. So I’ve been reliant on existing ones,” Bose says. “But I just try to dress up existing molds for them to catch attention.”
Dressing up her products means sourcing materials from the cottage industries in Quezon City for the resin fairies placed atop every bottle, and from Calamba, Laguna where Bose gets the candles and holders, and other fairy-related artwork.
The cheap competition from imported products, particularly China, also bothers Bose. “We have so many good products that are locally manufactured, but the problem is, we tend to be expensive because all the raw materials are imported, and the labor’s expensive. Kaya talo tayo (So we lose). But we have to make do,” she says.
The monitoring of the entry of imported goods, especially as espoused by globalization, is, for Bose, a concern that the government should focus on so small local players can survive without financial support from the government.
“I can’t say how much the company is worth now,” Bose says. “But we’re doing okay.”
“Okay,” for Bose, means seven of 10 people who drop by Faeries Faeries buy, at least, one of its products, with a 80% of these customers returning to buy more of what they liked, or availing of such promotions as 50% off the original price for product refills. It is, thus, easy for Bose to already plan on expanding, including coming up with new cosmetic products, hand or tote bags, a mini-café to complement the store, and even going into franchising.
“It was never my intention to get wealthy because of my business. I’m happy just to get by, and to do that without losing. So I make sure to pay my suppliers, my employees, and meet all my commitments,” Bose says. “I am not going to fail in this venture.”
Sidebar to Faeries Faeries:
Chemworld Fragrance Institute: The Sweet Smell of Success
In 2002, Filipinos spent P70 billion on cosmetics, both on imported and locally manufactured goods. Since about 9% of the figure was spent on fragrances, Chemworld Marketing Corp. (CMC) established Chemworld Fragrance Institute (CFI) in 2003, with the intention of providing the basic know-how on, first, the making of fragrances, and, second, marketing them should a participant’s entrepreneurial drive kick in.
“You can’t fail in this business,” Alexis Pineda, general manager of CMC, says. “Borrowing a statement from Couples for Christ, which claims it’s a community from womb to tomb, scents are the same – the moment a baby is born, (it is dabbed with) baby cologne, and even when someone dies, scents (are used). We make it easier for an entrepreneur to enter this kind of business.”
A half-day seminar, which costs P950 per person to cover the expenses for the materials used for hands-on activities, teaches the theories and consequent application of making scents, including perfumes and aromatherapy oils. To establish a small business afterwards, participants are expected to invest the minimum amount of P3,000 to procure the needed raw materials, laboratory equipment, and the packaging materials, such as atomizers, glass bottles, and sprayers.
“In a couple of days’ time, they can start to sell,” Pineda says. “The P3,000 minimum investment can potentially earn them a gross sale of up to P5,000. That’s how big the potential margin is, depending on the products they (choose to) do.”
CFI’s mother company, CMC, used to only cater to multinational corporations, which, after the Asian financial crisis, decided to transfer their manufacturing operations elsewhere in Asia, particularly Thailand and China. With the loss of earnings brought by the exodus of its former clients, CFI’s establishment has become an innovative way of responding to that very challenge.
For Pineda, scent-making is a surefire business venture. “Since vanity is always there, generally, the cosmetics industry will thrive,” he says.
Successful SMEs continued:
Godiva Inc.: Trail-blazing in a saturated cosmetics industry
In 1996, chemical trading firm Chemworld Marketing Corp. encountered difficulties selling licorice extract to local manufacturers of skin care products despite clinical studies promoting it as the best natural ingredient that can be used in skin-whitening products. Its owner, Fred C. Reyes, was not discouraged and instead took that business slump as an entrepreneurial opportunity.
“I took that frustration with the personal care market by developing our own line of skin care products using licorice extract as the major ingredient,” says Reyes, recalling the birth of Godiva, Inc. To date, Chemworld Marketing Corp. serves as major source of chemical ingredients for Godiva.
The Godiva Natural Skin Care line became so successful in the market that, eventually, some of the industry’s major players also started using licorice for some of their own products. It was a real pay-off for the company that was started with less than a million pesos, though is now valued “much, much, much more,” Reyes says. More importantly, though, it established Godiva as a major player in the cosmetics industry.
However, Godiva, which got its name from an old English word meaning “gift of God,” was not spared from the usual birth pains. When it was just starting, major distributors rejected carrying its products because they were considered a risky proposition. “An unknown brand with a high price tag is difficult to sell,” Reyes notes.
When Mercury Drug and SM were approached, the former approved the products after six months, and the latter initially only on a trial basis. “Eventually, the sales increased, and all the outlets were made available to us,” Reyes says. Godiva is now sold from CSI Pangasinan in the north, to Gaisano General Santos City in the south.
Running the business remains hard, Reyes admits, especially when “facing the big MNCs that have unlimited budgets for advertising. What we do is just focus on a certain target market, and all our resources go to that target market.”
While niche marketing seems to be working, Reyes believes that Godiva’s edge is in product development. In 2001, for example, an African-American customer e-mailed the company to ask for a product to help lighten the color of her lips. The company obliged, coming up with a whitening lip-gloss, a one-of-a-kind product in the world that makes lips and nipples pinkish, initially only for her. However, after word of mouth promoted the product, it became a regular product for the international market.
After a while, local queries also started to flood in, as Filipinos wanted to use the product to whiten their lips, which were stained from smoking, and the nipples, especially of women who just gave birth. The product is now Godiva’s bestseller.
To further boost sales, Godiva has penetrated the international market via the Internet. In 2001, the company developed an online catalogue to help market its products in the Philippines. However, all the inquiries received were from overseas. “We saw this as an opportunity, so we converted our catalogue into an online store,” Reyes says.
Since 2001, the international market has accounted for 20% of Godiva’s sales. A further 5% growth is targeted for this year, as distributors are established in various countries in Asia, North America, and Europe.
Now, aside from the skin-whitening products that established the Godiva name, the company has added such products as sun care protection (in the form of sunblock with jellyfish protection, also one of a kind and the only imported product in Godiva’s lines). It also established Godiva Skin Station in SM Fairview, a center for its products and services. Godiva now has over 300 employees, from only six when it started.
This is a far cry from its struggling start in 1996, which, although a booming year, was easily overshadowed by the Asian financial crisis in 1997. “It was a very trying period,” Reyes says. “But we proved the adage that women will spend more especially during times of crisis – and we never run out of crises!”
P99 Store: Big Sales from Low Prices
“I guess the best thing going for us was we really didn’t know what we were getting into. We just thought it was a cool idea to open a store,” Eric Teng, owner of the P99 Store, says.
That “cool idea,” which was started in 1993 with just enough money to pay only the rent, renovations, and security deposit – since the initial inventory of its merchandise was supplied on credit by people they knew – spawned a multi-million dollar business, with 31 outlets and eight franchises in and around Metro Manila, Vigan, Tacloban, Cagayan de Oro and Cebu and Samar, among others. Even more important, the concept store moved cheap shopping from the streets of Quiapo, Baclaran, and Divisoria to the more up-class environs of malls.
But Teng would be the first to admit that they learned their lessons the hard way before P99 Store reached its present status.
The concept of the store was based on the one-dollar shops that Teng and his wife noticed during a visit to the United States. Upon their return, his wife acquired a space in the then newly-opened Tutuban Center. “We thought, why not a P99 store?” he asks.
While the concept was then foreign to the Philippines, it was even more unfamiliar to the couple, and was, thus, a constant source of learning opportunities.
“We had to figure out for ourselves what to do,” Teng says. “Suddenly there were things called marketing, merchandise mixes, and this and that. We had to learn all that.”
Teng admits that while it is easy to start a business, keeping it going is what’s hard. “After 12 years, we realized we made lots of mistakes, and I’m sure in the next 12 years we will still make more mistakes,” he says. “The challenge for us in the business is, when you have a bad day, a bad week, or a bad month, how do you manage it? For us, somehow, we have been able to adjust a little thing here and there so we still manage to do well.”
The P99 Store is not a high-profit enterprise, but is volume-driven. Thus, the products it carries range from apparel and footwear to gift items and light electronics – always something for everyone, and everything for only P99. However, because of the cheap price of the store’s products, the “common misconception is that P99 Store items are of low quality,” Teng says. “But the truth is the only difference between our products and those of other stores is the price, since the quality of our merchandise is monitored.”
Most of the products are locally sourced. “We like to work with small family businesses with unique products,” Teng says. “(If you source your items from China), the volume is so great that when you buy from them, you’d look like everybody else. We already have a lot of competitors that copy our style, and imitate our merchandise, so we go the other direction – we have unique items that they don’t have.”
The store is also introducing another first: a concept called the P99 Rolling Store, which basically involves converting an L300 van into a store. “It’s taking the store onto a new level, taking the mountain to Mohammad, as the saying goes,” Teng says. “We take things for granted in Metro Manila, perhaps because we see a mall in every 15-minute drive. But that’s not true outside of Metro Manila, where people travel for hours just to get to a store so they can buy tsinelas (slippers). The rolling store aims to provide the shopper with the services needed. You don’t have to travel far, we’ll go to you.”
Already there are applications pending for franchising the rolling store, which is the direction Teng says the P99 Store is headed.
“We don’t necessarily open a P99 store to make money – it never started off as a profit thing, it’s more of a fun thing,” Teng says. “So many companies think of the profit first, but for us, we think of the customers first, and if we make money and we make a profit, then that’s good.”
Tacomio: Marketing Mexican Fare to Pinoys
“It started as a sideline,” says Leni Adriano, owner of Tacomio, a Mexican concept fastfood. “I’m a lawyer by profession, so this project was just on the back seat. Though it was doing okay, it wasn’t my main source of livelihood.”
A year and a half ago, Adriano realized how lucky she already was to have successfully penetrated the major malls in Metro Manila. While many concessions are rejected by these big establishments, her 11 stores were already regulars in food courts, in activity centers, and near cinemas. “I realized there’s a lot of potential here,” she says, “so what am I doing, not developing it?” Thus, she decided to go full-time into the business.
The business was promising from the start, especially when analyzed against the United States fastfood industry, from where it was based. “Mexican food is the fourth biggest seller in the US fastfood industry,” Adriano says. “I figured that when something sells in the US, Filipinos would also be very receptive to it. I never imagined Filipinos would be eating pretzels and bagels? So I thought this would work.”
And it did – with a start-up capital of only P350,000, which Adriano got back in only a few months. The company actually now charges the same amount to those applying for a franchise, plus another P50,000 as security deposit. “The amount isn’t much because it’s really a mini-restaurant,” she says.
When Tacomio started in 1999, however, the very nature of the business was a factor that created the “biggest challenges” Adriano faced. “Since it’s like a mini-restaurant, with 40 dishes on the menu (all ingredients are locally sourced), it entails a lot of supervision,” she says. “For something like this, there’s portioning, product presentation, and all that, so it needs more (control and guidance).”
The control and guidance extend to identifying good locations, as well as properly managing people.
For the past two years, Tacomio has been available for franchising. “It’s very flattering to get inquiries from abroad. Meaning that even at this point in time, people actually already want to put up Tacomio overseas,” Adriano says. “But for me, the company is very young, and I still have to grow the market here in the Philippines.”
In the long run, though, she still wants to export Tacomio, as “it is every franchiser’s dream to be able to export his/her brand,” she says. “I hope we can do that, though the first order of the day is to locally improve our operations, increase market presence, and improve brand knowledge.”
Help in this aspect is what Adriano also expects from the government. “The government usually assists exporters of products. If you’re thinking of exporting a brand, this is a relatively new thing (so there isn’t as much assistance given us),” she says. “But we export people, so we might as well export brands.”
For now, however, the goal is to make Tacomio “what Jollibee is to McDonald’s,” Adriano says. “As of now, I’m in the stage of creating my medium- to long-term plans, including marketing, advertising, growth of the number of outlets, if I have to borrow money from the bank, et cetera. But I’m not fazed. Filipinos love to eat, and they love to eat different kinds of food. And Tacomio is a fastfood which is the healthy alternative to the other fastfood chains.”
Taken from http://www.itnetcentral.com/article.asp?id=14951&icontent=18350
