Micro, small and medium enterprises (MSMEs) dominate the Philippine business sector particularly in the rural areas. The Philippine government adapted the One Town, One Product (OTOP) program as a job generation and poverty reduction strategy by promoting the creation and growth MSMEs. The study reveals that after six years of implementing the program, it has generated positive results in terms of investments, sales, enterprises assisted and jobs generated. Despite certain limitations and misgivings in its implementation, the study concludes that the program was successful in upgrading rural enterprises and linking them with the mainstream market. Conversely, the entrepreneurs deem the OTOP-Philippines very useful and they are satisfied with the kind of support that their businesses are receiving through the program. Some observations and recommendations for reforms were put forward to make the program more relevant and effective.

1. OTOP-Philippines:
Enhancing the competitiveness of rural enterprises
Felix A. Tonog
Philippine Business for Social Progress
Manila, Philippines
Email: fatonog@pbsp.org.ph
Revised December 2011
Abstract
Micro, small and medium enterprises (MSMEs) dominate the Philippine business sector
particularly in the rural areas. The Philippine government adapted the One Town, One
Product (OTOP) program as a job generation and poverty reduction strategy by promoting
the creation and growth MSMEs. The study reveals that after six years of implementing the
program, it has generated positive results in terms of investments, sales, enterprises assisted
and jobs generated. Despite certain limitations and misgivings in its implementation, the
study concludes that the program was successful in upgrading rural enterprises and linking
them with the mainstream market. Conversely, the entrepreneurs deem the OTOPPhilippines very useful and they are satisfied with the kind of support that their businesses are
receiving through the program. Some observations and recommendations for reforms were
put forward to make the program more relevant and effective.
Keywords
OTOP; OVOP; micro, small and medium enterprise development; rural enterprise
Acknowledgement
This study was undertaken through collaboration between the Ritsumeikan Asia Pacific
University, Japan and Philippine Business for Social Progress, Philippines. We are grateful
to Prof. Kunio Igusa and Prof. Takeshi Fujimoto for their support and guidance throughout
this study. This study would not have been possible if not for the dedication and hard work of
the research team composed of Katrina dela Rosa, Lizlei Puno-Manabat, Arianne Jane Sulla
and Rowena Rivera.
The views expressed herein are those of the author and not necessarily of APU nor of PBSP.

2. OTOP-Philippines:
Enhancing the competitiveness of rural enterprises
1 Introduction
The One Town-One Product (OTOP) program was adopted in the Philippines in 2004
as a flagship program of the government to promote the creation and growth of micro, small
and medium enterprises (MSMEs), especially in the rural areas. MSMEs dominated the
business sector in terms of numbers, and were seen as a potent force to generate jobs, propel
local economy, and combat poverty.
Patterned after the One Village, One Product (OVOP) movement at Oita Prefecture in
Japan, OTOP-Philippines aims to generate jobs by improving the competitiveness of local
industries by focusing on the product or service in which the particular town or municipality
has the resources, capability and the skills needed to produce the product or deliver the
service efficiently. The program ―is meant to catalyze development in the regional and rural
areas. It has effectively enhanced the entrepreneurial consciousness of the people in the
countryside and has paved the way towards the more productive utilization of the indigenous
resources as raw materials‖ (Cruz 2010). Many countries, particularly in Asia, have already
adopted OTOP as a SME promotion strategy.
The OVOP movement, as popularized by former Oita Governor Morihiko Hiramatsu,
Ph.D., is founded on three principles: ―Think globally, Act locally‖; ―Self-reliance and
Creativity‖; and ―Human Resource Development‖. Applying these principles in promoting
the growth of Oita’s local economy, Dr. Hiramatsu devised ―a regional development strategy
preferentially driven by economic interest, and decided to adopt a policy to realize a society
where the citizens’ lives and the community’s benefits come first‖. Such strategy is based on
endogenous development theory where ―people can develop their areas by promoting the
semi-secondary industries (or agro-processing), while making full use of their potential
resources and capital and also preserving the environment‖
(Oita OVOP International
Exchange Promotion Committee 2006).
Beyond the increase in the per capita income of people, Dr. Hiramatsu envisions,
through the OVOP movement, ―a society where all citizens can be proud and feel satisfied
with their lifestyles in each of their respective communities; where the elderly live with peace
2

3. of mind, the young can fully express their vitality, and people can produce their own
specialties including culture and tourism even in rural places‖.
This study was undertaken to assess the effectiveness of OTOP-Philippines as a
program and its relevance to MSME promotion and development initiatives as perceived by
the entrepreneurs participating in the program. Specifically, the study aims to:
a) review the OTOP-Philippines policy and its relevance to MSME needs and
development priorities;
b) identify the elements of the program and determine their effectiveness;
c) understand the profile of OTOP-participating enterprises and entrepreneurs;
d) assess the scale of OTOP-business operations; and
e) assess the entrepreneurs’ perception of the program.
A survey questionnaire was used to gather data from the respondents. A total of 31
OTOP-enterprises from the three major regional groupings in the Philippines (11 from Luzon,
10 each from Visayas and Mindanao) participated. The questionnaire was divided into five
parts. Part I gathered data on the profile of the enterprises and Part II asked information
about the profile of the entrepreneurs and their motivations or reasons for engaging in their
respective businesses. Part III inquired on the entrepreneurs’ business prospects as well as
business-related problems they encountered, while Part IV looked into their marketing
strategies. Part V sought to gather information on the perception of the entrepreneurs about
the OTOP program. The questionnaire also allowed the respondents to express their feelings
and insights for each of the component being measured. The data gathered was then analyzed
using descriptive statistics.
In addition, three case studies were developed to highlight the experiences of
enterprises participating in the program and to validate the survey data. OTOP-related
documents and government reports were reviewed to assess the performance of the program.
1.1 Policy Framework
The OTOP-Philippines program must be viewed within the broader context of micro,
small and medium enterprises (MSME) development policy in the country. While there has
been a number of legislations and government initiatives in the past that promotes the
creation of rural cooperatives and enterprises, it was Executive Order (EO) No. 176 issued in
2003 that paved the way for the development of a comprehensive program to promote “Isang
3

4. Bayan, Isang Produkto” (One Town, One Product). The said EO stipulates the objectives of
the Program:
[…]Stimulating local economic activity and small and medium enterprise (SME) growth,
generating jobs, developing the countryside, and sustaining the anti-poverty thrust of
government through countrywide lending to SMEs. […] For every city or municipality in the
country, a product or service cluster will be identified for funding support, such that an SME
offering such product or service in the said city or municipality shall be eligible to apply for a
loan with a Funding Source.
The Magna Carta for Micro, Small and Medium Enterprises (or Republic Act 6977 as
amended by R.A. 8289, and amended further by R.A. 9501 on May 23, 2008) provides the
comprehensive legal framework to promote, develop and assist MSMEs in the Philippines. It
stipulates the fundamental policy of the government for MSME development:
Recognizing that MSMEs have the potential for more employment generation and economic
growth and therefore can help provide a self-sufficient industrial foundation for the country, it
is hereby declared the policy of the State to promote, support, strengthen and encourage the
growth and development of MSMEs in all productive sectors of the economy particularly
rural/agri-based enterprises. To this end, the State shall recognize the specific needs of the
MSMEs and shall undertake to promote entrepreneurship, support entrepreneurs, encourage
the establishment of MSMEs and ensure their continuing viability and growth and thereby
attain countryside industrialization […] (Sec. 2, R.A. 9501).
The notion of MSMEs varies widely from country to country, and there is no single
definition by which MSMEs can be understood. In the Philippines, MSMEs, as defined in
R.A. 9501, refer to ―any business activity or enterprise engaged in industry, agribusiness
and/or service, whether single proprietorship, cooperative, partnership or corporation whose
total assets, inclusive of those arising from loans but exclusive of the land on which the
particular business entity’s office, plant and equipment are situated, must have value under
the following categories:
Table 1: Categorization of Enterprises by Asset Size
Category
Micro
Small
Medium
Asset Size
Not more than PhP 3,000,000
PhP 3,000,001 – PhP 15,000,000
PhP 15,000,001 – PhP 100,000,000
4

5. Moreover, R.A. 9501 features the following important amended provisions (MSMED
Council 2009):

Mandatory allocation of credit resources of all lending institutions for MSMEs for 10
years, increasing banks’ allocation of their loan portfolio to MSMEs of at least 10%,
and providing for administrative sanctions and other penalties to be imposed on
lending institutions for non-compliance with the mandatory credit allocation
provision;

Revision of MSME definition, raising the ceiling to qualify as a micro-enterprise to
assets of not more than PhP 3 million from the previous threshold of PhP 1.5 million;
small enterprises, with total assets of PhP 3 million to not more than PhP 15 million;
and medium enterprises, from PhP 15 million to not more than Php100 million, from
the previous threshold of PhP 60 million;

Increase in the capital stock of the Small Business Corporation, the government’s
financial institution focused on assisting MSMEs, from PhP 5 billion to PhP 10
billion, and the creation of a Venture Capital Microfinance Trust Fund under the
Corporation to promote business opportunities as available to MSMEs; and

Strengthening of the MSME Development (MSMED) Council, which is assigned to
formulate an MSMED Plan and integrate various government and private sector
initiatives.
Seeing the huge potential of micro-enterprises to foster economic activities and
employment generation, R.A. 9501 specifically articulates the needs of micro-enterprises as
distinct from small enterprises, and calls for interventions and programs to address those
needs and support the mainstreaming of micro-enterprises. As of the 2009 data of the DTI,
there are 780,437 registered business establishments in the country. Of this number, 99.6%
are MSMEs: 91.1% or 710,822 are micro-enterprises; 8.1% of 63,529 are ―small‖; and 0.4%
or 3,006 are ―medium‖. Large enterprises account for only about 3,080 (or 0.4%).
Collectively, MSMEs employ about 63.7% or 3,595,641 of total jobs: 30.7% by
micro-enterprises; 25.7% by small enterprise; and 7.4% by medium enterprises. It is also
estimated (NSO 1994) that MSMEs contribute about 30% to total sales in the manufacturing
industry, and around 60% of exporters belong to MSME category, contributing about 25% to
total export revenues (SERDEF/UP-ISSI 2001). As such, MSMEs play an important role in
the country’s economic development through their contribution to rural development and
decentralization of industries, creation of employment opportunities and more equitable
5

6. income distribution, use of indigenous resources, creation of backward and forward linkages
with existing industries, and entrepreneurial development.
Table 2: Distribution of Enterprises, by Category and Share in Employment
Category
No. of
Establishments
Percentage
Employment
Percentage
Micro
Small
Medium
MSMEs
Large
710,822
63,529
3,006
777,357
3,080
91.1%
8.1%
0.4%
99.6%
0.4%
1,731,082
1,449,033
415,526
3,595,641
2,049,298
30.7%
25.7%
7.4%
63.7%
36.3%
TOTAL
780,437
100.0%
5,644,939
100.0%
Source: DTI; NSO
The national export development strategy likewise stipulates the promotion of SMEs
as an important component of stimulating economic growth and rural development. Within
the framework, ―the formation and creation of industrial zones is also a mechanism to
disperse industrialization to other parts of the country to stimulate economic growth, while
clustering is hoped to spur the growth of small and medium enterprises across the country in
partnership with other government agencies, the private sector and local governments‖
(Reyes-Macasaquit 2008). Furthermore, ―the 2005-2007 Philippine Export Development
Plan (PEDP) called for sustaining the clustering approach to industry development with
special emphasis on regions and provinces with export-oriented cities/municipalities covered
by the One-Town, One-Product (OTOP) initiative‖ (ibid.). ―Industry clustering is now the
[Philippines’] key strategy towards an inclusive economic growth that is both efficient and
sustainable‖ (Cruz 2011).
The Medium-Term Philippine Development Plan, 2004-2010, outlined the dual
strategies of product development through OTOP and credit provision through SULONG
(SME Unified Lending Opportunities for National Growth) to support three million
entrepreneurs and generate six to 10 million jobs:
The One Town-One Product (OTOP) Program shall be implemented. This involves the
development and promotion of a product or service where a town has competitive advantage.
The OTOP interventions include: provision of a comprehensive package of assistance to
MSMEs and OFWs through a convergence of services by local government units, national
government agencies and private sector in product/design development, skills and
entrepreneurship training, marketing assistance and introduction of appropriate technologies.
OTOP also promotes the Big Enterprise-Small Enterprise Program as a source of technology
6

7. and market, ensures sustainability of the MSMEs through the industry clustering approach by
capitalizing on complementation among towns within a province or region. Technology based
entrepreneurship shall be encouraged and supported (MTPDP 2004-2010, p. 14).
In 2010, the Philippine gross domestic product (GDP) grew by 10.9% to PhP 8.513
trillion. The highest growth was posted by the industry sector at 14.9%, followed by the
service sector at 10.6%. The primary sector of agriculture, fishery and forestry grew only by
0.6 percentage points to 3.9%. More than half (54.8%) of the GDP is accounted for by the
service sector, while agriculture is lagging behind contributing only about 14% of GDP.
Clearly, there is a need to boost the growth of agriculture and agro-processing business
activities in order to disperse economic development in the countryside and reduce poverty in
rural areas. In a country like the Philippines where urban-rural divide is very evident, rural
areas are sharply lagging behind their urban neighbors. Unlike in Japan, industries co-exist in
harmony with farms in rural areas and blend with the rural culture. Through the OTOP
program, rural economies are envisioned to be revitalized by promoting agriculture and agroprocessing enterprises.
Table 3: GDP by Industrial Origin (At current prices; In Million Pesos)
Value
2010
Growth
GDP
8,513,034
10.9%
Agriculture, Fishery and Forestry
Industry sector
Service sector
1,182,371
2,663,497
4,667,166
3.9%
14.9%
10.6%
% Share
Value
100.0% 7,678,918
13.9%
31.3%
54.8%
1,138,334
2,318,882
4,221,702
2009
Growth
3.6%
3.3%
-1.2%
6.6%
% Share
Value
100.0% 7,409,369
14.8%
30.2%
55.0%
1,102,465
2,347,802
3,959,102
2008
Growth
% Share
11.5%
100.0%
-
14.9%
31.7%
53.4%
Source: National Statistical and Coordination Board (NSCB)
Seeing the benefits that the OTOP program has generated in the past six years, the
present Aquino government decided to pursue it.
According to DTI Secretary Gregory
Domingo, ―the implementation of OTOP has been extended by the present administration,
since the said programs proves to be an effective strategy in stimulating economic
development in the countryside‖ (De Leon 2011). The program will be pursued and scaledup as an integral component of the regional clustering program and will be imbedded in the
tourism promotion program (Ho 2011).
Clearly, the success of the OTOP program, or any local economic development
initiative, would not have been realized if not for the cooperation and support of the local
government units (LGUs). Reyes-Macasaquit (2008) contends that ―the local governments
7

8. have an increasing role to play in the country’s industrial development, particularly since they
have been granted increased autonomy to manage the economic and social affairs of their
areas of jurisdiction. Some LGUs have enacted their own investment codes in an effort to
develop indigenous industries. The OTOP program and industry clustering initiatives are
promising developments in the area of local economic development that should be
aggressively pursued‖.
1.2 Program Design and Implementing Structure
OTOP-Philippines was conceptualized to achieve the twin purpose of supporting the
creation and growth of MSMEs and rural enterprises, and generating jobs as a means of
reducing poverty.
The program supports micro, small and medium enterprises to
manufacture, offer and market distinctive products or services through the use of indigenous
raw materials and local skills and talents. It offers a comprehensive assistance package
through a convergence of services from local government units, national government
agencies, and the private sector.
This includes: (a) business counseling, (b) skills and
entrepreneurial training, (c) product design and development, (d) appropriate technologies,
and (e) marketing (see http://otopphilippines.org/aboutus.html).
Business
Enabling
Environment
Access to
Finance
Develop the
Countryside
Through
Establishment of
SMEs
Capacity
Building
Market
System
Development
Technical
Intervention
Source: Cruz 2010.
Fig. 1: Framework of the OTOP-Philippines Program
To achieve its goals, according to the OTOP accomplishment report (Cruz 2010)
refinements in the implementation of the OTOP program have led to the development of the
five outcome portfolios: (1) Business enabling environment to include policy support; (2)
Access to finance to include both public and private funds; (3) Market system development to
8

9. provide marketing models; (4) Learning and innovation for systematic program
enhancements; and (5) Sector competitiveness using the value chain approach to facilitate
convergence of stakeholders and business development service providers.
Corresponding to these desired outcomes are the following strategies that guided the
activities and initiatives undertaken:

Provide access to comprehensive and focused support programs to enhance
managerial and technical capabilities of implementers. This includes the conduct of
training, seminars and other assemblies and online mentoring.

Provide support for the improvement of processes in the delivery of services, ranging
from reducing the cost of doing business, advocacy and promotion, recognition of
best practitioner;

Provide opportunities for expanding of existing businesses. Activities falling under
this strategy consist of granting incentives based on product quality and adherence to
standards;

Promote comprehensive support to enhance market access. This includes establishing
market database, trade fair and mission participation, market matching, market
consolidation, pasalubong (gifts and souvenirs) centers, domestic consumption
campaigns, product development and promotions;

identify and implement programs to bridge financing needs, to involve access to
financing, financial brokering, financing forum and donor forum/consultancy; and

Develop and implement advocacy program to improve the levels of awareness and
support to the OTOP Program through the enhancement of the website, promo
collaterals, audio-visual presentations and through the adaptation of the OTOP
program to global concerns and trends (such as climate change, corporate social
responsibility, and monitoring and evaluation systems).
The Department of Trade and Industry (DTI) takes the lead in program planning and
implementation at the national and sub-national levels, primarily acting as the coordinating
body of all OTOP-related initiatives.
Other national government agencies such as the
Department of Science and Technology (DOST), Department of Tourism (DOT), Department
of Agriculture (DA), Department of the Interior and Local Government (DILG), Department
of Labor and Employment (DOLE), as well as government financing institutions like Small
Business Corporation, Land Bank of the Philippines (LBP), and the Development Bank of the
Philippines (DBP) also take part in the program by providing business support services and
access to financing. At the local level, the mayor of each city or municipality has the
9

10. responsibility of leading in identifying, developing and promoting a specific product or
service which the locale has the competitive advantage.
National Level Government Agencies
MSME Development
Council
Department of Trade & Industry – RODG
DOT
DA
DILG
DOST
DOLE
GFIs
MSME Development
Plan
Regional Level
Government Agencies
OTOP-Philippines
Provincial and Municipal
Level Government
Agencies
MSME
MSME
National and Local
Sub-sector
Associations
MSME
MSME
Source: Author
Fig. 2: OTOP-Philippines Implementing Structure
Through a long process of consultations with national government agencies, local
government units and the private sector, regional flagship OTOP were identified in which the
city/municipal OTOP were to be aligned. Table 3 shows the OTOP products for the 16
regions of the country.
Table 4: Regional Flagship OTOP
Name of Region
CAR
Ilocos Region
Cagayan Valley
Central Luzon
CALABARZON
MIMAROPA
NCR
Bicol Region
Western Visayas
Central Visayas
Eastern Visayas
Samboanga Peninsula
Northern Mindanao
Southern Mindanao
SOCSARGEN
CARAGA
Source: Cruz 2010.
OTOP Product
Roasted Coffee
Bangus
Home furnishings
Lanterns
Paper Mache
Woven Buntal
Healthcare and Wellness Services
Ceramics
Loom Woven Products
Woven Rafia
Mussels
Seaweeds
High-value Vegetables
Banana Chips
Fresh Banana
Palm Oil
The OTOP-Philippines identified five performance indicators against which the
program was measured: (i) employment generated; (ii) investments; (iii) domestic sales of
10

11. OTOP products; (iv) export sales of OTOP products; and (v) number of enterprises assisted
or developed.
The accomplishment report (Cruz 2010) reveals that the program exceeded its
performance targets, but employment. From 2005 up to the third quarter of 2010, the
program implemented various activities and interventions that generated positive results.
Export sales achieved USD 650.65 million, and domestic sales of PhP 15.6 billion. The
number of enterprises assisted reached 55,512 or 163% of target, which in turn created
417,489 jobs. Furthermore, the program attracted total investments of PhP 10.28 billion or
138% of target.
Table 5: OTOP-Philippines Performance (2005 – 2010Q3)
Performance
Indicators
Targets
Accomplishments
Total
% Accomp.
2005
2006
2007
2008
2009
2010Q3
668,000
Employment
417,489
62%
70,439
70,609
70,733
85,419
84,268
36,021
7.43
10.28
138%
0.814
1.891
2.331
2.618
1.663
0.960
12.38
15.60
126%
1.302
1.808
2.774
3.565
3.614
2.532
Exports (USD M)
522.00
650.65
125%
85.19
92.23
105.40
106.92
173.91
87.00
MSMEs Assisted/Dev'd.
33,964
55,512
163%
6,599
7,928
9,291
13,044
11,741
6,909
Investments (PhP B)
Domestic Sales (PhP B)
Source: DTI 2010.
In addition, the same report mentioned other important accomplishments of the
program: increased Pasalubong Centers (1,050) that carry OTOP products; OTOP market
outlets (5,121); product prototypes produced (6,783); new product designs launched (7,781);
conducted two National OTOP Summits; and facilitated international trade missions. More
importantly, ―of the 1,518 cities and municipalities of the Philippines, 1,497 of them or 99%
are now homes to active OTOP enterprises that have benefited from all forms of support from
both their respective local governments and the national government.‖
2 Presentation and Analysis of Survey Results
2.1 Background of enterprises
The survey data reveals that the majority, 71% (22), of enterprises participating in the
OTOP program are self-owned, i.e., sole-proprietorship. This is understandably so because
most family-owned micro or small enterprises prefer this form of business organization due
to its relative ease of formation which only requires business name registration with the
11

12. provincial DTI office and the business permit from the municipal office. The ―others‖, 29%
(9), are organized either as cooperatives, corporations, or business units of not-for-profit
organizations.
In terms of type of business activity, 39% are engaged in handcraft production, while
26% are into food processing. Small manufacturing accounts for 16%, while agribusiness
and agri-based products are 13% and 6%, respectively.
Type of Company
Agri-based
products,
6%
Agribusine
ss, 13%
Others,
29%
Selfowned,
71%
Type of Business
Food
processing,
26%
Handcraft,
39%
Small
manufacturi
ng, 16%
Fig. 3: Distribution of respondent-enterprises by type of ownership and business activity
As can be gleaned from Table 5, 51.6% of the enterprises employ 10 workers or less,
while 32.3% employ 11 to 20 workers. Only a few companies have more than 30 employees.
Likewise, seven out of 10 companies have capitalization of PhP 500,000 or less, while about
16% have capitalization of more than PhP 1 million. About 64% of the firms have annual
sales turnover of PhP 1 to PhP 3 million. These figures suggest that the large majority of the
enterprises surveyed participating in the OTOP program are ―small‖ in terms of the scale of
their operations.
Table 6: Scale of OTOP Firms
Employment
No. of Workers
Freq.
Capital
Percentage
<10
11-20
21-30
31-40
41-50
51-60
61-70
16
10
0
2
1
0
2
51.6%
32.3%
0.0%
6.5%
3.2%
0.0%
6.5%
No answer
0
31
0.0%
100.0%
Capital
(Php '000)
<100
100-500
501-1000
1001-3000
3001-5000
5001-10000
>10001
No answer
Annual Sales
Freq.
Percentage
12
10
4
2
1
1
1
38.7%
32.3%
12.9%
6.5%
3.2%
3.2%
3.2%
0
31
0.0%
100.0%
Sales
(Php '000)
<1000
1001-3000
3001-5000
6001-9000
9001-12000
12001-15000
15001-20000
>20000
No answer
Freq.
Percentage
0
20
2
4
0
1
0
2
0.0%
64.5%
6.5%
12.9%
0.0%
3.2%
0.0%
6.5%
2
31
6.5%
100.0%
12

13. 2.2 Profile of entrepreneurs
Table 6 shows the profile of the respondent-entrepreneurs as to gender, age, level of
educational attainment and commitment to the business.
Table 7: Profile of Respondent Entrepreneurs
Category
Gender
Male
Female
No answer
Freq.
Age Range
< 30
31-40
41-50
51-60
> 61
No answer
Percentage
8
20
3
31
1
3
11
10
3
3
31
25.8%
64.5%
9.7%
100.0%
Category
Level of Education
Primary School
Secondary School
Diploma
University Degree
No answer
Freq.
3%
10% Commitment to Business
35% Full-time
32% Part-time
10%
10%
100%
Percentage
1
5
4
20
1
31
3.2%
16.1%
12.9%
64.5%
3.2%
100.0%
30
1
31
96.8%
3.2%
100.0%
The enterprises surveyed are predominantly owned or managed by women with more
than 64% of the respondents.
This somehow validates the popular observation of the
growing participation and increasing role of women in setting-up and managing rural
enterprises. In addition, these micro-enterprises are predominantly in the handcraft and food
processing sectors. These types of business activities are relatively convenient for women to
put up due to ease of entry and do not require big capital. Women are also naturally inclined
to engage in food processing and handcraft business because these can be done at home while
performing their household roles.
Another view in the predominance of ―women-owned‖ micro and small enterprises is
that wives are actually the ones doing the paper work of registering the business while the
husbands are either employed or busy supervising the business. Registering a business may
take long hours of waiting and going back and forth, to which men mostly do not have the
patience. To avoid complications and to fast-track processing, the business is registered in the
name of the wife instead. However, in most cases, business decision-making is a shared
responsibility of the couple.
13

14. As to age, the large majority of entrepreneurs surveyed are within the age ranges of
41-50 years old (35%) and 51-60 years old (32%).
There are not so many younger
entrepreneurs below 40 years old.
The survey further reveals that the entrepreneurs are well-educated—64% of them
have college or university degree, and 16% completed secondary education. Almost 13%
have undergone some formal skills or vocational training. Moreover, almost all (97%)
reported that they work full time in the business making it the family’s major source of
income.
In starting up the business, the respondents used their own money as capital or
borrowed from relatives and friends, or obtained loans from financing institutions. Some
received grant from government agencies. The entrepreneurs were highly motivated by their
sense of self-fulfillment in owning and running their businesses.
This gives them the
freedom to employ their skills and knowledge in doing their work without having someone
telling them what to do. Others ventured into business to augment household income while
allowing them to spend more time with the family. Contributing to society by providing
employment opportunities and sense of self-worth to workers, particularly to women, were
noble reasons behind why many entrepreneurs started the business.
To gain social
recognition as an ―entrepreneur‖ also figured as one of the motivating factors.
2.3 Business prospects
Three out of four enterprises surveyed have positive outlook on their business. More
than half (52%) said that their current businesses are doing well, while 23% said that their
businesses are performing very well. On the other hand, 23% mentioned that their businesses
are pretty normal and only 3% said that their current business performance is bad. The
findings suggest that the market acceptance of the OTOP products is growing with increasing
demand both from local and export markets.
Based on the OTOP-Philippines accomplishment report mentioned earlier, the OTOP
enterprises have demonstrated very positive business potential. The growth in both domestic
and exports sales indicates the increasing market acceptance of the OTOP products. Given
the right combination of business development services and access to financing, those OTOPparticipating enterprises can be competitive. In addition, that 99% of city and municipal
governments have adopted the program is a manifestation that OTOP-Philippines have
become the primary strategy for local economic development.
14

15. Table 8: Evaluation of Current Business
Evaluation of Current Business
Frequency
Percentage
Rank
7
16
7
1
0
31
23%
52%
23%
3%
0%
100%
2
1
2
4
5
Very Good
Good
Normal
Bad
Very Bad
Total
Access to financing tops the list of the problems that the enterprises are experiencing
as mentioned by almost all (97%) of the respondents. This validates the findings of the
―Doing Business 2012‖. Overall on the ―ease of doing business‖, the Philippines is ranked
136th out of 183 economies indicating the need to institute more reforms to make the business
enabling environment more conducive to the creation and growth of enterprises. On the ―ease
of getting credit‖, the Philippines is ranked 126th out of 183 economies showing the relative
difficulty of getting credit particularly by small business establishments. Firms consistently
rate access to credit as among the greatest barrier to their operation and growth. This reveals
that despite the provision of R.A. 9501 for mandatory credit allocation for MSMEs, the
availability of funds from government financing institutions, and the liquidity of the banking
sector, the MSMEs’ are still having difficulty accessing credit; the primary reason being is
the lack of hard collateral.
Business problems encountered
Others
Transportation
Employment
Technical
13%
74%
77%
81%
Raw Materials Availability
84%
Marketing
84%
Financial
97%
Fig. 4: Business Problems Encountered
Problems related to marketing and availability of raw materials ranks second with
84% of the respondents having problems along this area. Moreover, technical problems
(production, product development, packaging, etc.), employment related problems, and
15

16. transportation and logistics were encountered by 81%, 77%, and 74% of the respondents,
respectively.
Table 9: The Philippines compared to global good practice and select Asian economies
on the ease of doing business
Ease of Doing Business 2012 - Global Rank
Economies
Singapore
Hong Kong SAR, China
Thailand
Malaysia
Japan
Vietnam
Bangladesh
Indonesia
Philippines
Cambodia
Lao PDR
Timor Leste
Rank DB2012
Rank DB2011
1
2
17
18
20
98
122
129
136
138
165
168
1
2
16
23
20
90
118
126
134
138
163
169
Source: Doing Business 2012, WB/IFC
That the Philippine MSME sector is still largely uncompetitive can be partly
explained by the compounding of financial, business development, and structural problems
that the entrepreneurs are experiencing as shown above.
In the 2010-2011 Global
Competitiveness Index, the Philippines is ranked 85th out of 132 countries/economies
surveyed. Such ranking of the Philippines lags behind those of its Asian neighbors such as
Singapore (3rd), Malaysia (26th), Thailand (38th), Indonesia (44th), and Vietnam (59th).
2.4 Marketing
More than half (58%) of the entrepreneurs surveyed are exporting their products,
while the rest cater to the domestic market. This validates the earlier estimate that 60% of
exporters are MSMEs. Further, that the majority of the OTOP enterprises are export-oriented
somehow corroborates the increasing export sales record of OTOP in Table 4 above. These
enterprises are able to tap the export market by either directly selling to companies abroad,
selling to local company that consolidates and exports products, or subcontracting from an
exporting company.
16

17. Distribution Channels
Public market
Cooperative
Street stall or booth
Others*
Own shop
Wholesale
Export Products?
0%
10%
No
Pricing of Products
Others
42%
3%
29%
48%
52%
Yes
Decide
own*
58%
68%
0% 20% 40% 60% 80%
0%
50%
97%
0%
100%
100%
200%
Fig. 5: Distribution of Enterprises as to Channels of Distribution and Pricing Strategies
Seven out of ten (68%) of surveyed enterprises are distributing their products through
wholesale arrangement either to local retailers or exporters. More than half (52%) are also
engaged in retailing in their own shops, while 48% sell their products through bazaars, trade
fairs, in malls, and in showroom of government agencies.
Almost all (97%) of the
respondents said that they decide their own pricing scheme using the basic cost-plus formula
[selling price = total cost (raw materials + labor + overhead) + margin].
Overall, Philippine export sales grew by 33.71% in 2010 to USD 51.392 billion from
USD 38.435 billion in 2009 (see Table 8 below). Traditional exports grew by 47.27% to
USD 28.274 billion, relying heavily on electronic products. But it should also be noted that
almost all product categories where OTOP contributes posted increase in sales: garments and
textiles, 11.93%; wearable, 0.89%; food, 1.78%; home furnishing, 23.18%; marine products
and carrageenan, 12.62%; giftware and holiday decors, 11.44%. Coconut products recorded
the highest growth at 88.25% to USD 1.508.47 billion. This is a good indication that the
OTOP-supported products are gaining wider export market acceptance. Promoting these
products also reduces the country’s reliance on electronic products that are more vulnerable
to adverse export market developments.
In 2010, according to the National Statistics Office, the top nine destination countries
for Philippine exports are China (19.52%), Japan (15.17%), USA (14.70%), Singapore
(14.27%), Germany (5.17%), Netherlands (4.73%), Republic of Korea (4.34%), Thailand
(3.48%), and Taiwan (3.41%).
17

18. Table 10: Philippine Export Sales Report (F.O.B Value in Million USD)
COMMODITIES
2010
I
II
III
IV.
2007
2006
38,435.81
49,023.17
50,465.72
47,027.88
23,831.50
1,870.89
2,571.92
28,274.31
15,582.31
1,671.55
1,944.92
19,198.78
21,046.84
2,142.90
2,099.94
25,289.68
23,624.39
2,503.85
1,853.79
27,982.03
22,250.79
2,843.33
1,718.12
26,812.24
118.66
1,577.87
1,107.21
1,181.02
537.84
74.84
67.32
7,247.97
1,869.85
13,782.58
117.61
1,550.32
752.05
958.77
477.58
67.16
67.32
6,600.18
1,470.49
12,061.48
153.98
1,681.27
901.88
1,139.62
808.03
182.92
67.32
7,454.06
2,481.65
14,870.73
160.66
1,486.23
891.58
1,011.71
584.84
202.99
61.68
7,460.89
2,604.56
14,465.14
76.51
1,303.07
784.21
825.72
465.45
206.91
66.83
7,338.98
2,058.32
13,126.00
371.16
775.31
1,508.47
45.51
2,700.45
6,635.20
TRADITIONAL EXPORTS
1
Semiconductors
2
Garments & Textiles*
3
Machinery & Transport
Sub-total
PRODUCT MGT. CATEGORY - REVENUE STREAMS
1
Wearables (excl. garments)*
2
Food*
3
Motor Vehicle Parts/Components
4
Home Furnishing*
5
Marine Products & Carageenan*
6
Giftwares/Holiday Decors*
7
Organic Products*
8
Electronic Products
9
Mineral Products
Sub-total
OTHER PRODUCTS
1
Petroleum Products
2
Metal Components
3
Coconut Products*
4
Construction Materials
Sub-total
OTHERS
2008
51,392.54
TOTAL
2009
292.95
481.43
801.31
46.32
1,622.01
5,553.54
1,240.16
577.56
1,348.25
182.87
3,348.84
5,513.92
1,108.68
485.32
946.23
167.57
2,707.80
5,310.75
846.36
389.36
756.15
181.49
2,173.36
4,916.28
Source: National Statistical and Coordination Council
* Commodities where OTOP contributes
The following table summarizes the respondent-enterprises’ views and practices on
the mix of marketing strategies that they employ. Capitalizing on the unique features of the
products (such as distinct taste, craftsmanship and design, and quality certification) is the
primary product differentiation strategy. Others have invested in good packaging to establish
their brands in the domestic market. To achieve higher market share, the enterprises sees that
participating in trade fairs and mission is an effective strategy. In addition, by continuously
offering new and better products, maintaining high product quality, and securing product
standards certifications, the enterprises would be able to increase their market acceptability.
Table 11: Summary of Marketing Strategies (a)
How to differentiate the
products?

distinct taste and
unique flavors

consistent good
product quality

distinct style, unique
designs, and
exquisite
craftsmanship

use export quality
materials

capitalizing on
How to achieve higher
market share?

penetrating the
mainstream market
by participating in
local and
international trade
fairs

aggressive marketing

continuously offering
new and improved
products

maintaining high
Main promotion method






trade fairs and
bazaars
word-of-mouth,
referrals from clients
and friends
kiosk
inclusion in the
OTOP catalogue
website, online
marketing
LGU endorsements;




Other promotion
methods
free taste, promo at
restaurants
endorsements from
local government and
DTI
word-of-mouth,
referrals from
customers
through volunteers
and friends
18

19. 





product standard
certifications
(GMP/HACCP,
OCCP)
premium quality and
uses 100% organic
ingredients,
chemical free,
organically-grown
use recycled
materials
local branding
improved packaging
mixed local and
imported raw
materials




product quality
advocating on
organic rice farming
collaborating with
local and national
government bodies
securing product
standards
certifications
(GMP/HACCP,
OCCP)
passing export
requirements and
standards

use of traditional
promotional materials
(brochures, leaflets,
flyers)
By focusing on the demand of the market, soliciting feedback from buyers and
customers, observing market trends and outlook, and complying with international standards
on product quality and safety, the entrepreneurs surveyed are able to develop new products
that have strong market potential.
Creating new and innovative designs for handcraft
products requires a lot of imagination and experimentation particularly in the use of different
raw materials.
Table 12: Summary of Marketing Strategies (b)







How to develop new
products?
paying attention to
market demand
soliciting feedback
from customers
satisfying buyers’
requests
observing market
trend and outlook
complying with
internationallyaccepted
manufacturing
standards
product research
using imagination in
experimenting with
materials used by
competitors
How to improve product
and quality?

learn new technology
to continuously
improve products

continuous skills
training

upgrade designs

strict compliance with
standards

undertaking research
and development
(R&D)

market testing and
product evaluation

monitoring buyers’
preference

soliciting customers’
feedback

using better raw and
finishing materials

regular monitoring

intensive quality
control



How to improve
services?
put value in dealing
with customers
evaluation and
feedback
ensure availability
How to gain consumer’s
reputation

maintain quality

consistently deliver
commitments to
clients on time

reasonably-priced
products

unique design of
products

maintain professional
relationship with
buyers and partners

availability of
products

open to customers’
feedback
The great majority (84%) of the respondents agree that it is necessary to create
regional brand for the OTOP products to strengthen their market positioning. About a quarter
19

20. (74%) are optimistic that it is quite possible to create regional brand while 13% thinks that it
is difficult to do so in view of the growing and stiffer competition from other countries.
Necessity to create regional brand
No answer
Possibilities to create regional brand
No answer
3%
6%
Difficult
No
13%
13%
Not so much
Yes
84%
0%
20%
40%
60%
80%
100%
6%
Quite Possible
74%
0%
20%
40%
60%
80%
Fig. 6: Perception of the Respondents on the Necessity and Possibility
of Creating Regional (OTOP) Brand
2.5 General image of OTOP
This section shows the respondent-entrepreneurs’ extent of knowledge of, perception
on the usefulness of, and level of satisfaction with the OTOP program.
More than 60% of the respondents said that they know about OTOP rather well and
32% claimed that they have very well knowledge of the program. Only 6% said that they
don’t have so much knowledge about OTOP. This high degree of awareness of the OTOP by
the entrepreneurs is indicative of the effectiveness of the program’s information campaign
and the extent of reach. Everybody agreed that the OTOP program serves its intended
purpose with 68% saying that it is very useful and 32% saying useful.
Knowledge on OTOP
Never Heard
0.0%
Little Knowledge
Usefulness of OTOP
0.0%
Not so much
Not useful at all
Not very useful
0.0%
6.5%
Know rather well
Know very well
0.0%
61.3%
32.3%
Useful
Very useful
32.3%
67.7%
Fig. 7: Respondents’ Knowledge and Perceived Usefulness of OTOP
20

21. This positive perception by the entrepreneurs is further validated by their level of
satisfaction with the support they are receiving through the program. More than half (52%)
are very satisfied and 35% are satisfied with the performance of the program as well as with
the support their respective businesses are receiving in the areas of marketing (trade fairs,
market matching), training, product development and design, access to financing (loan, grants
and subsidies), business process and management support.
Type of support from OTOP program
Others
Management
Evaluation of OTOP Support
1
Unsatisfied
Business Process
10
Financial
0.0%
Not Satisfied
8
0.0%
10
Design
Training
Marketing
Average
15
12.9%
Satisfied
24
35.5%
Very satisfied
30
51.6%
Fig. 8: Respondents’ Assessment of OTOP Program Support to MSMEs
According to the OTOP Program assessment study (Cruz 2010), there are five types
of interventions that are considered crucial by respondent-OTOP MSMEs to the growth of
their business. These are: product design and development (36%); marketing (31%); skills,
entrepreneurial and business training (19%); business counseling (7%); and loan facilitation
(7%). These findings somehow correspond to the findings of this study given in Fig. 8.
Evaluation of OTOP Exhibition
Others
2
Knowledge on the competitor's…
10
Price setting
11
Quality improvement
17
Understanding consumers' needs
18
Sales promotion
26
0
5
10
15
20
25
30
Fig. 9: Evaluation of OTOP Exhibitions
The OTOP exhibitions and trade fairs have likewise benefited the participating
enterprises through (1) sales promotion, (2) understanding consumers’ needs, (3) improving
21

22. the quality of the products, (4) appropriate pricing, and (5) having knowledge about the
competitors’ products. Those trade fairs were organized by the government in collaboration
with the sector associations at the provincial, regional and national levels primarily to provide
venue where OTOP enterprises can showcase their products. Those events also provided the
entrepreneurs to meet buyers and talk to consumers about their perceptions of the products,
their preferences and consuming habits.
Finally, the respondents articulated their insights on how the OTOP program and
policies can be further enhanced. The majority of the enterprises suggested that financing
should be made more accessible to MSMEs to allow them better opportunities to improve
their products, upgrade their plant, machineries and equipment, and to augment their working
capital. They also suggested that a more permanent place in Metro Manila could be provided
for OTOP products to be sold throughout the year and not only during trade fairs or exhibits.
An OTOP shop in central commercial areas in Metro Manila will give the products continued
market presence and will be more accessible to the consumers.
Other suggestions include:

Strengthen partnership with, and support from the local government units

Provide common service facilities for OTOP enterprises in the municipal level

Enhance assistance on product development, design, packaging, and promotional
activities

Provide subsidies for participation in OTOP activities and trade exhibits

Fair treatment among OTOP beneficiaries
However, some respondents believe that ―entrepreneurs should not be spoon-fed all
the time so that they will learn how to survive and innovate‖.
3 Case Studies
The case studies of three enterprises from Pampanga, Cavite and Davao City
presented in this section highlight the experiences of enterprises participating in the OTOP
program. They demonstrate the different forms of assistance that the program provides
depending on the needs of a particular enterprise.
22

23. 3.1 Case 1: Navarro Foods International, Pampanga
Navarro Foods International is engaged in
the food processing business that produces crab
paste, fermented shrimp, and fermented mudfish.
Gil Navarro, the business owner, had his
humble beginning in the late 1970s when he
decided to cook crab paste to augment his meager
income as a tailor. Coming from the area of crab
paste
makers
in
Masantol,
Pampanga,
he
experimented concocting his own recipe of crab paste. With an initial capital of PhP 400, he
purchased a sack of crabs, and processed them into crab paste in his small kitchen.
Surprisingly enough, Mr. Navarro’s recipe exceeded the taste and quality of other crab paste
makers.
From then on, he would sell his product to households and eateries in the
neighboring province of Tarlac since Pampanga was already saturated with crab paste
vendors. The venture turned out to be so profitable that he started selling his product to wet
markets and small restaurants. Eventually, distributors became interested in his products and
began carrying his brand.
Navarro’s Taba ng Talangka had its break in 1980s when a distributor of food
products based in Manila, started buying his product in large volume. Through the assistance
of DTI, DOST and other government agencies, Mr. Navarro was able to improve the
packaging of his products. He participated in trade fairs and exhibits sponsored by DTI and
Philfoodex, where he became a member. To meet the growing demand for his product, he
increased his daily production from 50 kilos to 1,000 kilos of crabs and hired additional
workers.
Mr. Navarro also ventured to other products such as balao-balao (fermented
shrimp) and burong isda (fermented fish).
Navarro Foods has a production area, office and retail outlet beside his house in
Masantol, which he renovated through a loan of PhP 950, 000 from SB Corporation in 2003.
He also received assistance from DOST on product packaging and in securing registration
with the Food and Drugs Administration (FDA). His products are packed either in bottles or
cans and properly labeled. When crab paste was identified as the OTOP of the municipality
of Masantol, Pampanga, Navarro Foods was one of the first enterprises to join the program.
Through the help of DTI, Navarro Foods underwent compliance and accreditation to Hazard
23

24. Analysis and Critical Control Points (HACCP) to enable the product to enter the
supermarkets.
In early 2005, Navarro Foods opened an OTOP retail outlet in a mall in Manila.
Aside from Taba ng Talangka, he also carries sweets and delicacies from other manufacturers
in Pampanga, most of who are members of the Sweets and Delicacies Association.
Eventually, he added another stall to carry non-food products also from Pampanga. This
venture proved to be very profitable. Mr. Navarro relates that only about 40 percent of his
sales are from crab paste.
Undoubtedly, Navarro’s Taba ng Talangka has already established its niche in the
market. The success of Mr. Navarro in the local market is overwhelming. His dream is to
penetrate the export market for his product. Having this in mind, he changed his business
name to Navarro Foods International, Inc. and incorporated with the Securities and Exchange
Commission (SEC) on February 20, 2003. In September 2005, he joined a Trade Mission to
the USA and Canada, organized DTI. Mr. Navarro is overwhelmed by the fast growth of his
business with the support from government and other private business organizations.
Mr. Navarro thinks that the business is doing pretty well.
However, like most
growing family enterprises, the company is having difficulty in dealing with employment
issues since most of the workers are relatives who seem not to treat company policies
seriously. The distance of the source of raw materials, which is a 12-hour land trip, causes
high transportation costs. Added to this is the declining supply of crab meat. Mr. Navarro is
well aware of the OTOP program and he thinks that it is very useful for enterprises like his to
be part of the program. The OTOP fairs and exhibitions opened market opportunities for the
company. Developing a strong brand is important in penetrating new markets and
maintaining market position, says Mr. Navarro.
Currently, the company is working on the fabrication and installation of retort and
boiler machines through a loan from the Department of Science and Technology (DOST),
which is part of the OTOP program. The project is to be completed in 2011.
3.2 Case 2: KATAKUS, Inc., Davao City
KATAKUS or Kababayen-an alang sa Teknolohiya nga Haum sa Kinaiyahan ug
Kauswagan, Inc. (Empowering Women through Appropriate Technology) was organized in
May 1996 by the defunct Women in Development Technology Institute. As a
nongovernmental organization, its main program is sustainable agriculture but it also serves
24

25. as the marketing arm of agricultural products of its partner organizations. The Kababayen-an
sa Katipunan Alang sa Kalambuan (KKK) or Katipunan Women for Development, on the
other hand, is an organization of peasant women consisting of 45 members. KKK is the
production arm of KATAKUS based in Panabo City in Mindanao.
The handmade paper project aims to provide livelihood to women to augment their
families’ income. After all, the area has abundant raw materials such as banana stalks, durian
peel, rice straws, cogon grasses, coconut husks, ramie and other fibers that could be used as
basic material for crafts, providing the women with alternative source of income.
KATAKUS produces lampshades, photo frames, photo albums, scrap books, occasion
cards, boxes, candle holders and other novelty items. As a social enterprise, KATAKUS is
aware of its purpose of creating economic and social value by employing women in the
community. Thus, marketing is extensively pursued in both domestic and foreign markets.
There are around 20 distributors in Davao City and Manila, most of which are specialty stores
and handicraft shops. Export destinations include The Netherlands, Japan, USA, Kuwait,
United Kingdom, Hong Kong, Canada and Germany.
KATAKUS started operation only in 2002. Sales slowly rose each year. From
approximately USD 4,000 in 2003, sales doubled in 2004, and increased to USD 10,000 in
2005. In 2006, after the discovery of the durian paper, sales astonishingly increased by 160
percent to USD 28,000. However in 2007, KATAKUS lost some of its export buyers and
sales relied mainly on the local market, although this too decreased by eight percent. At the
height of its operation in 2007-2008, KATAKUS hired as many as 31 piece-rate women
workers earning an average of PhP 200 per day.
What distinguishes KATAKUS from other manufacturers of handmade paper
products is that it uses the durian paper, which was an invention of Betty More, Executive
25

26. Director of KATAKUS, in 2004. Davao City is the durian capital of the Philippines. Ms.
More claimed that around ten tons of durian peels are generated every day, more during peak
season from July to October. The durian paper was launched in August 2005 during the
Davao City Kadayawan Festival.
Similar to the experience of many export-oriented companies, KATAKUS was badly
affected by the global economic slowdown as its export sales have been declining. Currently,
the company is relying on its local market and in participating in local trade fairs and OTOP
activities in which it is earning about PhP 100,000 a month. Ms. More is well knowledgeable
about the OTOP program through which the company has received assistance in financing,
marketing, and product development. She believes that while these support programs are
very useful in improving the competitiveness of small businesses like KATAKUS, there is a
need for more coordinated and comprehensive effort in addressing critical issues from
production, to financing, to marketing.
As it grows, KATAKUS needs additional tools and equipment to improve further its
production. It needs to continually upgrade the skills of the workers on new techniques and in
handling different materials. Limited capital prohibits the company from hiring enough
personnel to focus on marketing and finance and from investing in machineries. Ms. More is
confident that OTOP program will continue to help KATAKUS realize its potential as a
profitable enterprise by and for women.
3.3 Case 3: Carmfood Enterprises, Cavite
The fish trading and processing business was started by Carmelita’s grandparents in
1971. Fish processing is the common livelihood in their town of Rosario in Cavite. It was a
simple family business set in a small portion of the land where its current plant is located.
The business, which produces smoked and dried fish, was initially registered as Carmen’s
Smoked and Dried Fish Factory. When Carmelita took over, she started expanding both her
market and their product line.
Marinated and cooked fish were added to the products.
Nearby cities, supermarkets and Filipinos abroad were included in her target markets. In
1989, the name was changed to Carmfood Enterprises to reflect the transformation of a
simple backyard business into a flourishing one.
Carmelita ventured into this business mainly because of the influence by her parents
and the need to earn higher income. However, she too is driven by her passion for hard-work
and the sense of self-fulfillment.
26

27. The plant operates in a 9,222 square meter lot with two one-story buildings: the main
processing area and the old building for packaging and storage area. A portion of the lot is
used for parking and the rest of the vast open lot is used for drying.
In the main processing plant, the workers are clustered according to the work
process—initial rinsing, evisceration, de-boning. All the processes are done manually using
basic tools and equipment. Most use hairnets, aprons, masks and rubber boots. Only one
worker wore gloves.
Wooden tables are provided but some workers prefer to sit in low
stools as they were used to this working style. These workers with their plastic basin, and
wooden/plastic chairs positioned themselves based on the availability of space in their
designated production area.
There are assigned cooking vats for each product. The smokehouse is still part of the
main processing area where smoking is still done the traditional way with wood shavings and
saw dust. Wooden slates serve as fish trays for drying and smoking. Sun drying is done in the
open lot.
Most of the workers have been with the company for more than 10 years. Workers'
average age is 35 with the oldest at 72. Carmelita herself still helps in the production. The
major functions of the business are divided among her children with the eldest, Carol as the
general manager.
According to Carmelita, the business is doing very good despite the problems that
they encounter in the normal course of operations. Limited capital results in cash flow
problems since some clients pay in terms and cash is mostly tied with inventories while bills
have to be paid on time. During fishing off-season, the company has to buy from other
provinces, which entails additional transportation cost.
27

28. Carmfoods has been participating in OTOP trade fairs, which according to Carmelita,
is very helpful in promoting their products and in meeting new buyers. Carmfoods products
are available in major supermarkets and groceries.
The company is able to export its
products through a local consolidator and exporter. Carmelita says that the OTOP program is
very useful because of all the support that their company is able to get—from access to
financing and business development services to the network that they were able to establish.
Carmfoods is currently constructing its new four-storey plant.
Local and national
agencies assisted in the planning to ensure that the plant is compliant to HACCP standards.
Part of the construction cost is covered by their PhP 18 million OTOP loan from the
Development Bank of the Philippines in 2009. Additional equipments for the plant will be
purchased through a loan from DOST.
In preparation for their operation, the management
team received trainings on GMP and HACCP
4 Conclusion
The distribution of Philippine business establishments is largely skewed to rural micro
and small enterprises. While these types of enterprises confront many difficulties from
inefficiencies in production, limited capital and lack of access to financing, inferior products,
and limited access to mainstream markets, we have seen from the foregoing discussions that
OTOP-Philippines provides tremendous opportunity for these enterprises to become viable
and competitive in the long run.
Given the number of micro and small enterprises and the very important role that they
play in making the local economy vibrant, we can say that the government’s policy to
promote and support these enterprises is really necessary and crucial to the overall economic
growth and development. The regulatory framework and structural mechanisms are rightly in
place to make the OTOP-Philippines successful. Six years of implementing the program
have generated positive results in terms of investments, sales, enterprises reached and jobs
created.
OTOP-Philippines has reached its intended primary beneficiaries—the rural micro,
small and medium enterprises—that are in need of help and support to sustain their
businesses. The localization of program implementation allowed the program to focus on
sectors and types of business activities that are dominated by rural micro and small
28

29. enterprises. In addition, the program has given women-entrepreneurs the opportunity to
upgrade their business activity from mere home-based livelihoods into viable enterprises.
Despite an array of business problems they are encountering, the rural entrepreneurs
have very positive outlook for their business. The program has been quite successful in
linking the rural enterprises with the market, both domestic and export. OTOP-Philippines
has opened the doors of the export market to many rural enterprises that otherwise would not
have had the chance to access these markets. That many are in agreement on the necessity
and possibility of creating and promoting a regional OTOP brand for the Philippine products
to strengthen their market presence is a positive indication that those rural enterprises have
already realized the need to go out of their comfort zones and to embrace a bigger challenge
for their businesses.
Although many of those enterprises were affected by the global
economic slowdown, they were resilient enough to keep their businesses up and running.
Overall, the entrepreneurs have high praises for the program, which they deem very
useful. They are happy with the kind of support that their businesses are receiving through
the program.
However, there are still areas where more attention should be drawn and where
reforms are needed to make the program more relevant and effective.
1. While OTOP-Philippines is strongly marketing focused, equal attention must be
given to improving the production efficiencies of rural enterprises to increase their
competitiveness. In the handcraft business for instance where production is rarely
mechanized, consistency in product quality is a big problem causing rework,
rejects, wastage and high operating costs.
2. Investment in research and development must be intensified to develop new and
better products that have high market potential. ―SMEs seldom have the means to
follow a well-established, formal, and strategic procedure for commercializing
new ideas‖ (Bolinao 2009). Given these circumstances, the need is great for
increased ―collaboration in terms of financial support and actual R&D outputs‖ to
improve productivity and increase capacity to innovate and upgrade (ReyesMacasaquit 2008). The study done by FINEX and ACERD (see Aldaba 2008)
identified the following factors that prevent SMEs from acquiring the necessary
technology or engage in their research and development: lack of funds;
insufficient information; lack of skills in evaluating alternative technologies;
difficulty in meeting government requirements for availing assistance.
29

30. There is a lot of room for improvement in the processed food sector to
produce foodstuff that will cater to the global market.
The growing market
consciousness for health and wellness offers huge potential for organic foods and
this is an area where rural enterprises can definitely strongly participate.
―Ironically,‖ as Tonog (2010b) asserts, ―the growing demand of the market for
environment-friendly and fair products puts a strong pressure on business,
especially on MSMEs in developing countries like the Philippines, to comply with
stringent regulatory standards—from product safety to fair labor practices.‖
3. Financing should be made more accessible to rural micro and small enterprises for
without it they would not be able to scale-up production, invest in modern
technology, or undertake serious research and development activities. As many of
those surveyed agreed, access to financing remains illusive for various reasons.
One of such reasons is the lack of or insufficient collateral needed to borrow
money form formal financing institutions. Another compelling reason is the
entrepreneurs’ inability to comply with the documentary requirements of banks.
Access to financing is crucial to growing MSMEs. Jenkins et al. (2007)
argues that ―credit enables small and medium-sized enterprises to enter the
marketplace, scale-up production, upgrade technology and change or improve
their products and services‖. But access to credit is a major stumbling block to
MSME growth in the Philippines. Despite the apparent availability of funds from
government financing institutions (GFIs), and the liquidity of the banking sector,
the majority of MSMEs’ still has difficulty accessing credit (see ADB 2007).
Zavatta (2008) earlier observed that ―the information that SME can
realistically provide to external financiers often lacks detail and rigor. The
problem is often aggravated by the low level of education of small entrepreneurs,
who may not be in the position to adequately articulate their case‖. Moreover, he
opined that ―the information supplied to bankers and outside investors by familyowned SME is often not fully accurate and realistic, and opaque behavior may
prevail. Under these conditions, outside financiers tend to adopt a very cautious
attitude toward SME, and either reduce the amount of financing sought or refuse it
altogether‖.
As such, there is a strong case in helping rural entrepreneurs improve their
financial management skills while encouraging financing institutions to develop
and offer financing products that suit the conditions of rural MSMEs.
30

31. 4. The noble intention of the OTOP program is sometimes diminished by too much
politicking at the local level. It has been observed that some mayors choose the
products or service to be promoted under OTOP on the basis of personal business
interest, or as favor to select groups identified with him or her. While the DTI has
clear guidelines in the selection of products or services primarily based on the
locale’s indigenous resources and competitive advantage, these are sometimes
easily set aside.
In addition, since politics has been involved in the
implementation of the program, its continuity suffers when there is a change in the
local leadership.
Because of this, private sector participation and leadership in the
implementation of the OTOP program is very important in making sure that the
program is sustained freed from politics and that it will continue regardless of who
the mayor is.
5. To further strengthen the competitiveness of the OTOP industry, structural
reforms are needed to make sure that the business enabling environment is
conducive to the creation and growth of rural enterprises.
This includes
streamlining of the business registration process, reducing the barriers to entry and
growth, and making the regulatory regime more predictable.
For example, the high transportation and logistics costs makes it
prohibitive to many rural enterprises to explore and enter new markets, whether
domestic or export. According to the Doing Business 2009, ―the relatively higher
cost of exporting from the Philippines (USD 816 per container) compared to
Malaysia (USD 450), Thailand (US$625), and Indonesia (US$704) makes it
disadvantageous to Philippine MSMEs.‖ Given the export orientation of the
majority of OTOP enterprises, the high cost of exporting lessens the ability of
Philippine exporters to compete regionally and globally.
―The Philippines,‖ Tonog (2010a) argued, ―has a long way to go in
improving its competitiveness. Critical to this is the curbing of corruption at all
levels and streamlining the bureaucracy to stimulate enterprise creation and
harness economic activities.‖
Micro, small and medium enterprises are indeed the backbone of Philippine economy.
They are the engines of economic activity and job creation especially in the countryside
31

32. where large companies hardly exist. The fact that the Philippines is largely agricultural,
supporting the development of rural agro-enterprises will ensure that the poor benefits from
economic growth. The OTOP-Philippines program, in spite of its limitations, offers
opportunities to thousands of rural enterprises to become viable and competitive. Therefore,
it is imperative that reforms are instituted to make the program truly unleash and harness the
entrepreneurship that is needed to move the Philippines forward. @
32

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