The Laguna Small - Microfinance Gateway · PDF fileThe Laguna Small and Medium ... Nonprofit Supplier of Information and Communications Services in the Philippines. ... (German Confederation

The Laguna Smalland MediumEnterprise ServiceCenter:

A Case Study of aNonprofit Supplierof Information andCommunicationsServices in thePhilippines

The Laguna Small and Medium Enterprise ServiceCenter:

A Case Study of a Nonprofit Supplier of Information andCommunications Services in the Philippines

by

Ronald T. Chua

with Contributions byAlexandra Overy Miehlbradt

Development Alternatives, Inc.

June 1999

This work was supported by the U.S. Agency for International Development, Bureau forGlobal Programs, Center for Economic Growth and Agricultural Development, Office ofMicroenterprise Development, through funding to the Microenterprise Best Practices (MBP)Project, contract number PCE-0406-C-00-96-6004-00.

Ronald T. Chua is a professor of the Asian Institute of Management (AIM), an international graduatemanagement school based in Manila, Philippines. Prof. Chua teaches entrepreneurship in AIM’s Master inBusiness Management Degree Program. He also offers various courses in microfinance and socialentrepreneurship. Building on his field-based research, he regularly conducts public courses in microfinancefor practitioners. He leads the Philippine training team under the Consultative Group to Assist the Poorest's(CGAP) Asian microfinance capability building initiative. Prof. Chua's research includes work on Philippinemicroenterprises, microfinance institution performance, and impact. He is co-author of “Transaction Costs ofLending to the Poor,” published by the Foundation for Development Cooperation in Australia. He hasconducted studies for the Asian Development Bank, Australian Agency for International Development, theInternational Labour Organization, and the German Agency for Technical Cooperation. Prof. Chua hasprovided consultancy in post-employment entrepreneurship development programs for big private corporationsundergoing organizational restructuring in the Philippines.

Alexandra Overy Miehlbradt is a consultant in microenterprise development currently based in Colombo, SriLanka. She has over five years of field-based experience in the design, management, technical development andevaluation of business development services programs for microentrepreneurs, principally in South East Asia.Prior to becoming a consultant she spent four years with Save the Children as a technical advisor based in thePhilippines. In this role, she helped the organization develop its global BDS strategy focused on womenmicroentrepreneurs. Ms. Miehlbradt has a Master’s Degree in Public Policy from the Kennedy School atHarvard University, a B.S. in Management from the Wharton School of Business and a B.A. in InternationalDevelopment from the University of Pennsylvania.

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ACKNOWLEDGMENTS

The authors of this series of reports would like to extend many thanks to Marshall Bear forhis work, guidance, and encouragement throughout the conception, implementation, analysis,writing, and editing of the study. Together with Clifton Barton, Mr. Bear was the drivingforce behind the study and helped us every step of the way. The authors also owe a debt ofgratitude to Dr. Ned Roberto from the Asian Institute of Management, the marketingspecialist for the study, who guided the marketing research aspects of the study from start tofinish. Thanks also are due to AV Research, which carried out the survey and tabulation forits work and patience during the many phases of the survey. Acknowledgments are due toManolita Gonzales, Luzviminda Villanueva, and Maurino Bolante who provided researchassistance for the Laguna SeCen and Internet models case studies. The authors are also verygrateful to all the representatives from MSEs who gave their time to answer the surveyquestionnaires.

Thanks to the managers and staff of the RCPI/Bayantel Public Calling Office in SouthernMindanao for their time and help with the survey. Particular thanks are also due to theRCPI/Bayantel national management of the PCOs for agreeing to serve as a case study andfor its support of the information gathering. Thanks to the management and staff of theLaguna Small and Medium Enterprise Service Center, the leadership of the Laguna Chamberof Commerce and Industry, the heads of the Chamber sectoral associations, andSwissContact for their time and help in the Laguna SeCen case study. Thanks to themanagement of ASSIST, the Philippine Chamber of Commerce and Industry, the PhilippineExport Board, and the APEC Center for Technology Exchange and Training for SMEs fortheir time in providing the information used in the Internet models case. Thanks to thecellular phone company managers and the staff of the Department of Trade and Industry inSouthern Mindanao for their help in gathering information. Thanks also to Hunter Consultingfor its work in quantifying the opportunities for MSEs in the telecommunications industry.

The authors gratefully acknowledge the suggestions and support from Robin Young ofDevelopment Alternatives Inc. (DAI), and Kate McKee and Anicca Jansen of the U.S.Agency for International Development. Thanks to MBP staffers Nhu-An Tran for the helpwith editing and formatting the papers and Matt Buzby for his administrative support for thestudy.

Lastly, thanks to our families who patiently and enthusiastically supported us throughout thework on this study.

Although there was help and guidance from these sources, the authors accept responsibilityfor the design, implementation, and analysis of the study as well as any shortcomings orerrors therein.

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TABLE OF CONTENTS

EXECUTIVE SUMMARY ix

CHAPTER ONEOVERVIEW OF THE STUDY 1MBP STUDY HYPOTHESIS ......................................................................................................1

Key Research Questions ............................................................................................2Research Design........................................................................................................3

GUIDE TO THE PAPERS............................................................................................................5Synthesis Paper..........................................................................................................5Case Studies of Bayantel PCOs and the Laguna SME Service Center ........................6Internet-Based Information Services ..........................................................................7

METHODOLOGY .....................................................................................................................7

CHAPTER TWOOVERVIEW OF THE LAGUNA SECEN 9BACKGROUND .......................................................................................................................9SERVICES............................................................................................................................. 10

Communication Services ......................................................................................... 10Information Services................................................................................................ 11Business Registration............................................................................................... 11Administrative Services........................................................................................... 12Marketing Assistance............................................................................................... 12Financial Assistance ................................................................................................ 12Training................................................................................................................... 13

COMPETITION ...................................................................................................................... 13

CHAPTER THREECLIENTS 15CURRENT CLIENTS ............................................................................................................... 15POTENTIAL CLIENTS—MSES OF CALAMBA .......................................................................... 17

Ownership and Awareness of ICT Equipment.......................................................... 19Awareness, Usage, and Image of Selected Business Development Services ............. 19Perceived Impact of Services on Profit .................................................................... 22Potential New Services ............................................................................................ 23

COMPARISON OF CURRENT AND POTENTIAL CLIENTS............................................................ 24

CHAPTER FOURFINANCIAL AND OPERATIONAL INFORMATION 25REVENUE AND COST ANALYSIS ............................................................................................ 25OPERATIONAL INFORMATION ............................................................................................... 27

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CHAPTER FIVECONCLUSIONS 29SWOT ANALYSIS OF THE BUSINESS MODEL......................................................................... 29

Strengths ................................................................................................................. 29Weaknesses ............................................................................................................. 30Opportunities........................................................................................................... 30Threats .................................................................................................................... 30

THE FUTURE OF THE LAGUNA SECEN ................................................................................... 31Prospects for Basic Telecommunication Services..................................................... 31Prospects for Modern ICT-Based Services............................................................... 32Recommendations for SeCen Service Mix and Strategy........................................... 33

APPENDIX A: BRIEF DESCRIPTION OF THE CALAMBACONSUMER SURVEY A-1

APPENDIX B: HISTORY OF THE LCCI AND LAGUNA SeCen B-1

APPENDIX C: CALCULATION OF POTENTIAL INITIAL MARKET SIZEAND REVENUE MAXIMIZING PRICE C-1

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LIST OF FIGURES AND TABLES

Figure

1 Awareness, Usage and Perception of Need forCommunications Services.................................................................................. 20

2 Awareness, Usage and Perception of Need forBusiness Development Services......................................................................... 20

3 The SeCen as an Information Broker ................................................................. 33

Table

1 Laguna SeCen’s Competition and Its RelativeStrength and Weaknesses................................................................................... 14

2 Profile of Surveyed Calamba MSEs................................................................... 17

3 Calamba MSEs—Information and TelecommunicationsEquipment Ownership ....................................................................................... 19

4 Calamba MSEs—Service Purchase Location andReason for Nonpurchase .................................................................................... 22

5 MSEs Perceived Impact on Profit of Services .................................................... 23

6 Estimated Revenues by Type of Activityfor Five Months ................................................................................................. 25

7 Revenue Projections for 1998 by Type of Activity............................................. 26

8 Budget and Level of Swisscontact Support ........................................................ 27

9 SWOT Analysis of the Laguna SeCen ............................................................... 29

10 Demand and Competitive Situation for Business Services.................................. 34

11 Summary of Laguna SeCen Business Model...................................................... 35

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Executive Summary

LIST OF ACRONYMS

BDS Business Development Services

DLD Domestic Long Distance (phone calling)

DTI Department of Trade and Industry

ICT Information and Communication Technology

LCCI Laguna Chamber of Commerce and Industry

MBP Microenterprise Best Practices Project

MSEs Micro and Small Enterprises

MSMEs Micro, Small, and Medium-Sized Enterprises

NGO Nongovernmental Organization

PCO Public Calling Office

PilTel Philippine Telephone Company

PLDT Philippine Long Distance Telephone Company

PT&T Philippine Telephone and Telegraph Company

SeCen Service Center

SMEs Small and Medium-Sized Enterprises

SWOT Strengths, Weaknesses, Opportunities, and Threats

USAID United States Agency for International Development

ZDH Zentralverband des Deutschen Handwerks (German Confederation of Small

Business and Skilled Crafts)

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EXECUTIVE SUMMARY

BACKGROUND ON MBP RESEARCH

New information and communication technologies (ICTs) are rapidly transforming businesspractices in many parts of the world. In industrialized countries, new ICT developments arealtering internal operations of companies, as well as external relationships with buyers,suppliers, and customers. They are producing fundamental changes in the ways in whichmarketing and distribution networks function. They also are giving rise to new types ofbusiness services and changing the ways in which firms access and use existing services.

This case study on the Laguna Small and Medium Enterprise Service Center (Laguna SeCen)is one of a series of papers published by the Microenterprise Best Practices (MBP) Project onICT. There are two key reasons for MBP’s research initiative on the provision of ICTservices to micro and small enterprises (MSEs):

1. ICT services could be a critical and crosscutting tool for MSE development. Thehypothesis here is that communications, like microfinance, is a basic commodity servicethat is needed and demanded by a broad range of MSEs, and thus can be delivered at thesame level of scale and outreach as microfinance.

2. Examining the provision of ICT services to MSEs could provide lessons to the BDS fieldon how to commercialize other business services.

This case study and its companion case study on the Bayantel Public Calling Offices (PCO)seek to examine whether telecommunications services are a critical need for MSEs and howto promote the delivery of such services in a commercially viable manner. This case studyexamines the prospects for ICT-based services in the SeCen’s service mix in the context of anonprofit provider attempting to become more demand led and sustainable. The findingscontrast the demand for various business services from the SeCen’s current customer basewith that from its potential customer pool for the expansion of ICT services.

OVERVIEW OF THE LAGUNA SECEN

The Laguna Chamber of Commerce and Industry (LCCI) established the Laguna SeCen asthe primary arm for service delivery to micro and small enterprises (MSEs) in July 1997. Amajor impetus for this move was to test whether a service center for MSEs could become aself-sustaining proposition. Swisscontact, a Swiss nongovernmental organization, supportsthe SeCen through the provision of financial support, technical advice, and human resourcedevelopment.

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The SeCen embodies the “one-stop shop” business concept, offering the following services:

§ Communication services (phone, fax, and copying services);§ Information services (trade events, policy issues, etc.);§ Business registration;§ Administrative services (bookkeeping, accounting, secretarial);§ Marketing assistance (trade fairs, subcontracting);§ Financial assistance (credit facilitation and financial advice); and§ Training (management and technical training, consultancy).

Although services are designed to meet a wide array of business needs, the SeCen’s focus ison higher value-adding services—those services that help clients grow and develop. Basicservices, such as communications and administration, are offered more to complete theorganization’s one-stop shop concept rather than to be a profit center on their own.

The SeCen faces a difficult competitive environment for basic telecommunications andadministrative services because it cannot compete effectively against private sector suppliersin the Calamba area. These specialized suppliers often are able to offer lower prices becausethey are frequently franchisees, they are efficient, and they do a large volume of transactionsfor a broad market.

Clients

The SeCen’s target clientele are micro, small, and medium-sized enterprises (MSMEs) inLaguna and nearby towns consisting of light industries, fruit and vegetable growers, andswine and fowl raisers. Its clientele also includes cooperatives that are direct members ofLCCI and sectoral member associations of the chamber.

In interviews conducted by the authors, the heads of the sectoral association articulated theneeds and priorities of the associations and their members. In general, association membersdemand services that will help them expand and develop their businesses. One commontheme among the associations was demand for information on the latest technology and onpotential markets both in the Philippines and abroad. All sectoral associations headsinterviewed said that there is not much need for communication support facilities.

There are marked contrasts between the SeCen’s current customer base and its potentialcustomers for ICT services in Calamba. The results of a survey of MSEs in Calamba showthat these MSEs have a high level of awareness and usage of services that help them conductdaily business, such as telephone and courier services. The sectoral association members, onthe other hand, do not need these “transaction facilitation” services since they generally owntheir own basic communications equipment.

In contrast to the sectoral associations, the level of awareness of information and businessdevelopment services among MSEs in Calamba is low. Those who were aware of theservices considered their needs for those services to be low. This may be because these MSEs

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are focused mainly on business survival rather than on growth. Consequently, a prospectivebusiness development services supplier would have to spend considerable effort incommunicating the benefits of these services to increase demand.

Financial and Operational Systems

Laguna SeCen expects to generate most of its revenue from marketing assistance activitiesfor SMEs and from training seminars. This is consistent with the center’s belief that it isSMEs’ ability to sell their products profitably that fuels demand for services. Currently, thecost structure allows the SeCen to generate proportionally more profit from business supportservices, particularly business registration. However, the SeCen has kept the price formarketing assistance low so that it can build its client base. The SeCen expects both grossand net revenues from marketing to increase when it starts charging a percentage of salesfrom trade fairs and other marketing activities.

Swisscontact provided the financial subsidy to establish the SeCen. Three types of time-bound financial support were provided in this case:

§ A one-time subsidy to cover 50 percent of the center’s incremental investments in officeimprovement, equipment, and furniture;

§ An incentive tied to the gross or net revenue (depending on the service) generated by thecenter; and

§ A subsidy to partially cover operational costs to be phased out over a period of threeyears.

KEY FINDINGS AND CONCLUSIONS

A strengths, weaknesses, opportunities, and threats (SWOT) analysis of the Laguna SeCenshows where the organization will need to focus in the future so that it can build its customerbase and begin to show profits. The following summarizes the analysis:

Strengths

§ Use of financial analysis in decision making. Financial statements are regularly used toinform changes in service mix and pricing.

§ Close relationship with customers. The membership-based structure enablesmanagement to receive frequent feedback and suggestions from customers.

§ Low fixed costs. Limited staff keeps overhead costs to a minimum.

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§ Wide network of on-call suppliers. The linkage to LCCI gives SeCen access to a poolof resource persons needed for various services.

Weaknesses

§ Lack of market assessment. The SeCen’s system for determining its service mix is stillad hoc and is based as much on donor demands as consumer demand.

§ Lack of focus. Services are not defined by a single, clear customer benefit.

§ Poor location for basic services. The SeCen’s location is inappropriate for attractingcustomers for basic services.

§ Limited geographical reach. The SeCen is limited by a lack of physical presence inother areas that would enable staff to respond better to their customers.

Opportunities

§ New services for growing SMEs. Modern ICT provides the opportunity to develop newservices for the SeCen’s market of growth-oriented SMEs.

Threats

§ Subsidized services from other suppliers. The distorted market makes it difficult forthe SeCen to charge prices that will lead to financial sustainability.

§ Established, specialized suppliers. Specialized suppliers focused on a limited range ofservices are often more efficient and better at marketing their services than the SeCen.

The SeCen should continue to focus on marketing and training services to capitalize on itsstrengths and existing customer base. This specialization would provide the SeCen’s clientswith a single clear benefit—reaching new markets through both improved products andincreased exposure to potential customers. By adding an information service, the SeCencould offer its customers an additional service that provides the same business benefit. If alltransaction facilitation services (phone, fax, and copying) were dropped, the SeCen would beable to focus on higher value-adding services. With this clearer client benefit and nichemarket, the SeCen could then hone its internal capacity, service features, and marketingstrategy to meet the demand of this market.

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Chapter One—Overview of the Study

CHAPTER ONEOVERVIEW OF THE STUDY

“Revolutions in communication have often been at the center of changes in society.”1

New information and communication technologies (ICTs) are rapidly transforming businesspractices in many parts of the world. In industrialized countries, new ICT developments arealtering internal operations of companies, as well as external relationships with buyers,suppliers, and customers. They are producing fundamental changes in the ways in whichmarketing and distribution networks function. They also are giving rise to new types ofbusiness services and changing the ways in which firms access and use existing services.

In many developing countries, ICTs are beginning to open up a range of new possibilities forsupporting business development efforts, including those geared to the needs of micro andsmall enterprises (MSEs).2 ICT developments are giving rise to new types and combinationsof business services that appear to be both effective, from the customers’ point of view, andfinancially viable, from the suppliers’ perspective.

MBP STUDY HYPOTHESIS

The Microenterprise Best Practices (MBP) Project3 decided to study the provision of ICTservices for MSEs for two key reasons:

1. Researchers hypothesized that ICT services could be a critical and crosscutting toolfor MSE development.

In the last several years, many practitioners have been designing custom businessdevelopment services for different types and subsectors of MSEs. The hypothesis of thisstudy was that ICT services, like microfinance services, are both needed and demandedby a broad range of MSEs. The development of appropriate ICT services could functionas an effective tool for MSE promotion in a variety of circumstances for a wide range ofMSEs. There are several parallels between microfinance and ICT that point toward thispossibility:

1 World Bank, World Development Report, 1998, p. 56.2 In the study, MSEs were defined as those enterprises employing 25 or fewer workers, including family

members. The number of workers was used as an indicator of business size because of the expected difficultyin estimating business assets, particularly for micro and small enterprises.

3 Microenterprise Best Practices (MBP) is a USAID-funded global research project managed by DevelopmentAlternatives, Inc. (DAI), Bethesda, Maryland.

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Microenterprise Best Practices Development Alternatives, Inc.

§ Communications, like microfinance, is a commodity service with multiple users andend uses. All businesses small and large must communicate with suppliers andcustomers. Communications, like microfinance, also has a range of uses forindividuals. Growth in delivering customer-oriented microfinancial services increasedwhen providers pursued a mass market appeal. This also appears to be the case forICT services.

§ Microfinance institutions provide a basic service that customers are willing to pay for.Like microfinance, communications is a basic service; the benefits of increasedaccess and availability are dependent on the end user. Communications may lenditself to the levels of outreach and commercialization that microfinance enjoys.

§ Like finance, ICT tended to reach populations and markets that were more profitable,while more remote, poorer areas were not getting access. Recently, technologydevelopments have driven the costs of delivering ICT services down substantially,and many governments have deregulated ICT markets, which has increasedcompetition. This study aims to determine whether these developments could open upaccess to ICT services for more MSEs.

2. Researchers expected that looking at the provision of ICT services to MSEs couldprovide lessons to the business development services (BDS) field on how tocommercialize other business services.

Increasingly, donors and practitioners are looking toward commercialization of BDS andthe development of BDS markets as key strategies for sustainably reaching large numbersof MSEs with the business services they want. There are cases of some types of ICTservices being successfully provided to MSEs on a large scale and on a commerciallysustainable basis, particularly in the private sector. These cases can provide lessons forhow to sustainably reach MSEs with other business services. Most businesses cannotgenerate sufficient revenues from a single service, so they offer a mix of services. Byanalyzing how private sector and NGO suppliers determine their service mix and adjust itover time, we can learn how suppliers survive and grow in changing markets. By lookingat a service in demand and learning how ICT suppliers stimulate demand for additional,related services, we can learn how the private sector builds demand for services.

Key Research Questions

This series of papers seeks to address the above two issues by examining the Philippineexperience in the provision of basic and higher value-adding ICT-based business services toMSEs. The study examined the access, uses, and benefits of ICT-based business servicesdelivered to MSEs by both private and not-for-profit service providers through a series ofinstitutional case studies and accompanying consumer research.

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Three key questions guided the case study research efforts:

§ How does telecommunications access affect the business operations of MSEs? Theaim of this question was to determine if telecommunications services are a critical needfor MSEs. Knowing the impact of telecommunications access to MSEs can help donorsdetermine if these services should be a priority in MSE development programs.

§ What are viable business models for delivering ICT services to MSEs? The aim ofthis question was to determine how to promote the delivery of ICT services to MSEs on acommercially viable basis. The answers to this question provide donors and practitionerswith lessons not only on how to deliver ICT services to MSEs but also how tocommercialize other business services as well.

§ What are the emerging Internet-based models in use by business supportinstitutions? The aim of this question was to determine if and how modern ICTs,specifically the Internet, can help practitioners to more effectively and sustainably deliverbusiness services that MSEs demand. This information can help donors and practitionersdetermine if modern ICTs are a priority for MSE programs and how they might be used.

The ICT sectors in many developing countries are changing rapidly as governments attemptto leapfrog into the Information Age with modern systems. According to InternationalTelecommunications Union estimates,4 the total value of telecommunication privatizationbetween 1984 and 1996 was $158.5 billion, of which 53 percent, or $86 billion, was investedin the Asia Pacific region. Given the dynamic growth of this sector, this study also posed thequestion: What are the emerging business opportunities for MSEs as suppliers or supportersof basic communications and information services? The analysis of business opportunitiesfor MSEs explains if and how the ICT industry in the Philippines is an investmentopportunity for MSEs. This information can help donors and practitioners understand howMSEs can profit from the ICT revolution, not only as customers but also as providers.

Research Design

The first two questions above are answered in the institutional case studies of twotelecommunications service providers, Bayantel Public Calling Offices (PCOs) and theLaguna Small and Medium Enterprise Service Center (Laguna SeCen). The cases contrastBayantel, a diversified private sector telecommunications company providing, among otherservices, basic telecommunications access through storefront “phone shops,” with the LagunaSeCen, a subsidized, technically supported, multiservice business center offeringtelecommunications and administrative services alongside a wide range of businessdevelopment services for micro, small, and medium-sized enterprises (MSMEs).

The Bayantel PCOs were chosen for study because they are profitably providing basictelecommunications and related services to low-income people, including MSEs, throughout

4 ITU World Telecommunication Development Report, 1996/97.

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the Philippines. This business model is reaching a large number of customers and isfinancially viable. An examination of the company shows why it has been successful in thesetwo key business elements. Choosing a private sector model also offered the opportunity tolearn more about providing services to MSEs when profit is the bottom line.

The Laguna SeCen was chosen for study because it embodies the “one-stop shop” model forMSE service provision. Studying the SeCen provided insights as to how the appropriate mixof services for this type of business model can be determined and how ICT services might fitwithin that mix. Having designated the SeCen as a profit center less than two years before thestudy, this organization is at a common point for nongovernmental organizations (NGOs) inthe provision of BDS: early in a drive to become more demand-led and sustainable. Thestudy of this model enabled researchers to analyze common hurdles that NGOs face whenthey try to commercialize business services.

In the case studies, researchers assessed both the demand for and the supply of ICT servicesfrom these institutions. The demand analysis looked at current and potential customers’awareness, use, satisfaction and benefits from a range of ICT services. The supply analysisconsisted of a detailed examination of the two institutions: their business strategies, strengths,and weaknesses. Looking at demand and supply in the context of the overall market, theauthors recommend a future direction for each of the institutions studied in delivering ICTservices to MSEs.

These case studies are instructive for BDS practitioners or donors interested either inproviding ICT services to MSEs specifically or in commercializing business services ingeneral. Bayantel PCOs and the Laguna SeCen are facing the same issues as other businessservice providers around the world:

§ Who should be my target customers?

§ What should be my service mix?

§ What service features do MSEs want and how do I know?

§ How do I make my services more attractive than the competition?

§ How do I build my customer base?

§ How do I tailor my organization to sustainably, and even profitably, meet MSE demandfor business services?

The case studies illustrate how each institution is answering these questions in a dynamic andchanging market. The consumer research provides insights into how well each institution issucceeding and what changes they could make to be both more profitable and more effectivein reaching their target MSE customers. The contrast between the two institutions provides

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insights into how the private sector and NGOs often approach these questions differently.Donors or practitioners interested in developing BDS markets can find lessons in thesedifferent approaches on how to improve the effectiveness of both the private sector andNGOs in meeting MSE demand for services.

The third question above on Internet-based services is answered in a case study that profilesfour Internet-based information service providers and analyzes the potential of these modelsto provide information services to MSEs. Although the study concludes that none of theseproviders is yet reaching MSEs on a significant scale or a sustainable basis, the analysis oftheir strengths and weaknesses shows why MSEs are not interested in their services andhighlights some common mistakes that organizations make when offering modern ICTservices to MSEs. The contrast of these organizations’ supply of Internet-based informationservices with the demand from MSEs for information services suggests ways that donors andpractitioners could experiment with sustainable, demand-led, Internet-based informationservices for MSEs. This case study will be of particular interest to donors and practitionersinterested in using modern ICTs in the delivery of business services to MSEs.

The question on investment opportunities for MSEs in the ICT industry is answered throughan analysis of current MSE participation in the sector in one area of the Philippines,complemented by national level research on the ICT industry, its growth, and the emergingopportunities for MSEs. The analysis describes the various MSE business models currentlyoperating in the ICT sector and estimates the number of MSEs nationally who currentlyoperate each type of business. This information will be particularly useful to MSE programsinterested in promoting business start-ups.

GUIDE TO THE PAPERS

Synthesis Paper

The synthesis paper presents an overview of the study findings. Chapter Two describes thecontext of the case studies. This enables the reader to understand the macroeconomicsituation affecting consumers and the case study institutions and allows for comparison toother countries. Chapter Three summarizes the opportunities for MSEs in the ICT industry.

Chapters Four, Five, and Six address the key issues that guided the study. Chapter Fourpresents the highlights of the institutional case studies. It contrasts the two institutions’strategies for building a customer base by comparing their clients, competitive situations, andmarketing strategies. The chapter concludes with an overview strengths, weaknesses,opportunities, and threats (SWOT) analysis of each business model and recommendations forhow new ICTs could contribute to each institution’s customer-building strategy.

Chapter Five answers the question, “What can the business models studied teach us aboutgood practice in the commercialization of business development services?” The authoroutlines suggestions for how BDS providers, in either the private or NGO sectors, can assessdemand for BDS from MSEs, choose an appropriate mix of services, determine a target

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market, and tailor their organizations to meet demand. This chapter includes data from thestudy on the relative importance of different types of business services to MSEs. These dataare particularly relevant to donors or practitioners starting new MSE programs.

Chapter Six addresses the question, “What should be the service mix and deliverymechanisms for the provision of ICT services to MSEs in the future?” The chapter suggestsif and how both basic telecommunications services and higher value-adding ICT services cansustainably be offered to MSEs on a large scale. The chapter summarizes findings on thebenefits to MSEs of telecommunications services and the demand for higher value-addingICT services. In the chapter, the author proposes appropriate mixes of ICT services forproviders and suggests what roles NGOs and donors could play in the promotion of ICTservices for MSEs.

Case Studies of Bayantel PCOs and the Laguna SME Service Center

The case studies on the Bayantel Public Calling Offices and on the Laguna Small andMedium Enterprise Service Center provide details on each institution’s business strategy andcustomers. Each case study describes the institution’s background, services, customers,competition, business strategy, operational systems, and financial information.

This case study examines SeCen, a nonprofit provider attempting to become more demandled and sustainable, and its prospects for adding ICT-based services to its service mix. Keyissues addressed are the nature of MSE demand for ICT services, the types and range of ICTservices that the Laguna SeCen should offer, the market or clientele that it should offer theseservices to, and the appropriate marketing responses that may be called for. The case includesthe results of in depth interviews with some of the SeCen’s customers and a survey of 100MSEs in the surrounding town that represent potential ICT service customers. The findingscontrast the demand for various business services from the SeCen’s current customer basewith that from its potential customer pool for the expansion of ICT services.

The Bayantel PCO case includes the results of the consumer research from a survey of 100MSE Bayantel PCO customers. The results show the kind of MSEs that are using PCOs,details of the MSEs’ awareness and usage of services in the PCOs as well as ICT servicesfrom other suppliers, MSEs’ satisfaction with services from the PCOs, and MSEs’ perceivedbenefits from using telecommunications services.

Each institutional case study also includes results from consumer research on the potentialdemand for more modern ICT services, such as e-mail and Internet access. Based on acomparison of customer demand and the institutions’ supply of ICT services, the authorsanalyze each business model’s strengths, weaknesses, opportunities, and threats within thecontext of the market. Each case study concludes with recommendations for changes thatwould help the organizations expand their services.

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Internet-Based Information Services

The study of Internet-based information service provision focuses on analyzing the marketfor Internet-based information services from MSEs in the Philippines. The paper describesthe nature of demand for Internet-based information services from MSEs based on the resultsof the consumer research surveys. The authors give an overview of the use of the Internet byMSE support organizations and the provision of Internet-based information services in thePhilippines.

Four organizations that provide Internet-based information services are profiled in moredetail: the Agricultural Statistics and Marketing Information Services Project (ASSIST), thePhilippine Chamber of Commerce and Industry, the Philippine Exporters Confederation, andthe Asia Pacific Economic Cooperation (APEC) Center for Technology Exchange andTraining for SMEs. The paper contrasts the features of information services supplied by theseorganizations with what MSEs demand, based on the results of the consumer surveys. Theauthors conclude that none of the four business models is appropriate for delivering Internet-based information services to MSEs, and they propose an alternate model.

METHODOLOGY

Demand for and benefits from ICT services were assessed using private sector consumerresearch tools. A survey of MSEs modeled on a marketing Usage, Attitude, and Image studywas conducted to assess MSEs usage, behavior, and satisfaction with a range of ICT servicesand the impact of those services on their businesses. The survey included product concepttests for modern ICT services for which usage is currently low so that potential demand forthese services could be gauged. Using private sector marketing research tools, the productconcept tests introduced MSEs to the services and gathered feedback on their interest inpurchasing them.5 Three hundred MSEs were surveyed, 100 from each of the case studiesand 100 MSE cellular phone users.

The supply analysis was conducted through the two institutional case studies. Informationwas gathered through site visits, interviews with management at different levels, interviewswith franchise owners in the case of the PCOs, interviews with other key persons, inspectionsof the competition, and examination of the organizations’ records to the extent possible. Themodels for the delivery of Internet-based information services were examined byinterviewing the management of four business support organizations that use the Internet toprovide services to businesses.

To determine the potential for MSEs as suppliers or supporters of ICT services, the studydrew on information gathered from the Bayantel Public Calling Office case study andinterviews with cellular phone company executives. A private sector market research firm

5 For more information on these consumer research tools see the MBP publication “Technical Note: Using

Market Research Tools for the Design and Improvement of Business Development Services” by AlexandraOvery Miehlbradt.

8


that focuses on the telecommunications industry conducted complementary macro dataresearch on business opportunities for MSEs.

To understand the context of the telecommunications industry, researchers relied oninterviews with key informants in the industry and on various government and privatepublications. Interviews with representatives from key government agencies were conductedto understand the situation of MSEs in the Philippines. The interviews were supplementedwith a review of government and private publications on MSEs in the Philippines.

9

Chapter Two—Overview of the Laguna SeCen

CHAPTER TWOOVERVIEW OF THE LAGUNA SECEN

BACKGROUND

The Laguna SeCen provides a broad range of business services to enterprises in the Lagunaarea. 6 Its origins date back to the establishment of the Laguna Chamber of Commerce andIndustry (LCCI) in 1975. LCCI is a private association of small, medium, and largeenterprises in Laguna province.7 It has counterparts in other provinces, which coordinatethrough a national body, the Philippine Chamber of Commerce and Industries.

LCCI is a “voluntary partnership of businessmen and professional people working together tobuild a healthy economy and ultimately improve the quality of life in the differentcommunities of the province of Laguna, thus making them better places in which to live andwork.” LCCI’s objectives are to:

§ Serve as a vehicle for the exchange of information that benefits individual members andcompanies;

§ Represent members before local and provincial governments for solutions to problemsneeding government help or intervention; and

§ Provide business support services to members.

As of October 1998, LCCI had 107 regular members, 98 small and medium-sized enterprises(SME) direct members, and 7 sectoral association members with a membership base of morethan 600 enterprises. An estimated 85 percent of total membership are SMEs, notably in theembroidery, woodcraft, food processing, footwear manufacturing, and metal craft subsectors.The membership fee structure is graded based on business size. Regular members pay themost, direct SMEs members less, and sectoral association members a much smallermembership fee.

LCCI established the Laguna SeCen in July 1997 as the culmination of strategic shifts,beginning in 1993, that increased the focus on SMEs and on business development services.LCCI established the SeCen as the primary arm for service delivery to SMEs. A major

6 This MBP case study focused on ICT-based services to satisfy existing and create demand for SeCen

business services. Readers who wish to learn more about the Swisscontact business center model—and theexperience in the Philippines and Indonesia—should visit the website on the Committee of Donor Agenciesfor Small Enterprise Development: http://www.ilo.org/public/english/65entrep/isep/bds/donor/index.htm.The site contains case studies that were presented at the committee’s recently sponsored conference in Rio deJaneiro on “Building a Modern and Effective Development Services Industry for Small Enterprises”including the paper, “Swisscontact: The Business Centre Approach in Indonesia and the Philippines,” by RobHitchins and Alan Gibson.

7 Laguna is a province south of and adjacent to Metro Manila. It is part of Calabarzon, a region of fiveprovinces around Metro Manila earmarked as a growth center of the Philippines.

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impetus for the separation was to test out whether a service center for SMEs could become aself-sustaining proposition. Consequently, LCCI decided to treat the SeCen as a profit center.Swisscontact, a Swiss nongovernmental organization (NGO), supports the SeCen through theprovision of financial support, technical advice, and human resource development. (SeeAppendix B for a history of the Laguna SeCen and LCCI.)

With its establishment as a distinct entity under LCCI, the Laguna SeCen articulated its ownvision, mission, and objectives. Laguna SeCen adopted the following vision: “Assistancegiven to cottage, small, and medium-sized enterprises in Laguna will result in increasedproductivity and enhancement of products and services for global competitiveness andthereby economic growth.” The SeCen’s mission is to “provide demand-driven services atreasonable cost for sustainability in order that the sector’s need is continually served.” Thismission is premised on the belief that cottage, small, and medium-sized enterprises cangreatly help the economic growth of the area.

SERVICES

The SeCen embodies the one-stop shop business concept. Its services are designed to meet awide array of business needs. However, the SeCen’s focus is on its higher value-addingservices—those services that help clients grow and develop.8 Basic services, such ascommunications and administration, are offered more to complete the organization’s one-stop shop concept rather than to be a profit center on their own. The SeCen’s focus comesfrom the management’s belief that helping SMEs sell their products profitably will fuel thedemand for business services. The SeCen’s services are not limited to LCCI members only.The SeCen management hopes that offering services to nonmembers will encourage them tojoin LCCI by showing them the benefits they can get from membership. The range ofservices is described below.

Communication Services

Basic and more modern telecommunications services make up part of a group ofadministrative and business support services. The SeCen provides local and direct domesticlong-distance calling, fax, and copying services. It plans to offer Internet access through itsown computers. In 1997, assistance from Swisscontact made possible the installation andupgrading of communication facilities.

Center staff estimated the following usage per facility:

§ Phone calls (domestic only)—three clients per day;§ Photocopying—15 to 30 clients per day; and§ Fax messages—five messages per week.

8 Looking at the revenues and costs for various services, included in Chapter Four, provides insight into why

and how the SeCen has operationalized this focus.

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The center’s executive director considers these as incidental services rather than a main focusof service provision. He added that servicing internal requirements alone (e.g., photocopyingof training materials) already provided sufficient volume to justify the investment in theequipment. Thus, such facilities are now being used more in support of other services ratherthan as a business in and of itself.

Information Services

Information is delivered mainly through LCCI’s Quarterly Bulletin, which is circulated tomembers and non-members. The newsletter features announcements of trade events, issuesaffecting business enterprises in Laguna (such as traffic, power supply, and tax measures),and LCCI activities (such as training workshops, conventions, and sports events).

In July 1998, LCCI signed a memorandum of agreement with the Canadian PrivateEnterprise Accelerated Resource Linkage for a comprehensive database on businessinformation in Laguna. Once finished, the database is expected to provide local and foreigninvestors with updated, easily accessible information on all Laguna-based firms.

Business Registration

Facilitating business registration is part of the group of administrative and business supportservices that the SeCen offers. Business registration is the service most in demand in terms ofnumber of customers. Business registration is required by law, although enforcement varieswidely. The government of Laguna has stepped up enforcement, fueling demand for thisservice.

In May 1997, the Laguna SeCen was authorized by the Department of Trade and Industry(DTI)–Laguna and the Bureau of Trade Regulation and Consumer Protection to processbusiness name applications for new and renewal applicants. The collaboration is anexperiment to test the delegation of certain government functions to the private sector.

Customers apply for their business registration at the Laguna SeCen office, which is moreconveniently located than the DTI office for many Laguna business people. Another value-adding feature is that staff assist applicants in filling out their forms, which eliminates therisk of applications being returned because papers are missing or forms are incorrectly filledout. The applications are then forwarded to the DTI head office in Metro Manila for approvaland entry into DTI’s database. The estimated processing time is three weeks.

Processing fees are P121 (US$3.03) plus a service charge of P99 (US$2.48) for singleproprietorship, partnership, corporations, cooperatives, federations, and associations.Initially, the center handled 37 registrations per month. This has since increased to 70 to 80per month. As of February 1998, the SeCen had processed 398 applications since thearrangement with DTI began.

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Administrative Services

The SeCen provides bookkeeping, accounting, and secretarial services, including typing andother clerical work. The SeCen considers these services as part of the administrative group,which includes communications and business registration. They are not a major focus for theSeCen.

Marketing Assistance

The SeCen’s marketing services are delivered primarily through trade fairs and thefacilitation of subcontracting agreements between big companies and SMEs. The SeCen alsooffers marketing consultancy on a limited basis.

MSMEs are invited to display and sell their products during the trade fairs, which the SeCenorganizes once or twice a year. Participating establishments pay registration fees. In thefuture, the SeCen also plans to charge participants a percentage of total sales generated fromtrade fair participation. SeCen is limiting fees now so that a client base can be built.

The SeCen receives a fee for facilitating subcontracting agreements. In the first quarter of1998, the SeCen sponsored seminars on the subcontracting business and on how to close asubcontracting deal. The SeCen is in a good position to do business matching because of itsnetwork of enterprises, particularly through its chamber members. LCCI has activelyexpanded its network through agreements with other chambers in the Philippines and abroad.

Financial Assistance

The SeCen provides lending services, credit facilitation, and financial advice to SMEs. Fundsfor microcredit come primarily from the provincial government of Laguna and DTI–Laguna.Loans are made available to SMEs that are members of the chamber or members of sectoralassociations. The minimum loanable amount is P10,000 (US$250) and the maximum,P20,000 (US$500), payable within 12 months. Borrowers are charged an interest rate of 10percent per annum plus a processing fee of 2 percent. A committee of three—composed ofLCCI’s president, a director or board officer, and LCCI’s executive director—screens loanapplications. With the onset of the financial crisis, the LCCI board suspended lendingoperations to avoid losses.

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Training

The SeCen provides management and technical training programs and consulting both forsmall and large companies. Training workshops and seminars have covered such topics as thevalue-added tax, import–export, entrepreneurship for SMEs, effective businesscommunication, quality control, accounting, analysis of financial statements, and basicsupervision.

Training fees have recently been raised to professional standards. Previously, LCCI offeredsubsidized seminars as part of its membership benefits, but the SeCen management foundthis practice unsustainable. In most training programs, the SeCen’s role is that of organizer.To keep overhead costs low, the SeCen relies on a pool of on-call rather than in-housetrainers.

In addition to its own training workshops, the SeCen has received contracts from governmentagencies to provide subsidized training to SMEs. The contracts have enabled the SeCen toimprove its capacity to develop and deliver in-house training programs. When the demandfor training seminars increased, the SeCen opened its own conference room, which can berented for meetings, seminars, workshops, and other company functions.

COMPETITION

As shown in Table 1, the Laguna SeCen faces a different competitive environment for eachservice it offers.

The SeCen faces a difficult competitive environment for basic telecommunications andadministrative services because it cannot compete effectively against private sector suppliersin the Calamba area. These specialized suppliers often are able to offer a lower price becausethey are frequently franchisees, they are efficient, and they do a large volume of transactionsfor a broad market. Franchises of major telecommunications companies pay a lower fee thanother phone owners to their phone company, enabling them to offer customers a lower priceas well. Franchises also benefit from the advertising of their parent companies.

However, possibly the most significant weakness of the SeCen in its telecommunications andadministrative services is its location—inside the Luzon Development Bank compound. Thisarea does not have high pedestrian traffic, and it is not easily visible from the street. For moretraditional business development services (training, marketing assistance, and marketinformation), the SeCen’s greatest asset is its network. However, the SeCen must competeagainst both subsidized and specialized providers for these services.

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Table 1: Laguna SeCen’s Competition and Its Relative Strengths and Weaknesses

Laguna SeCenService

Existing ServiceSuppliers Strength Weakness

Basictelecommunicationservices

Public calling officesInformal providersPublic phones

Has access andequipment

Not a franchiseePoor location

Basic business supportand administrativeservices (photocopying,computer rental,accounting, etc.)

Specialized privateproviders like copycenters, computer rentalstores, accountingagencies, etc.

Has equipment Poor location

Technical informationservices

Specialized governmentinstitutions like theUniversity of thePhilippines in Los Banos,International Institute ofRural Reconstruction, etc.

Not technicallyequippedStaff generalists

Market informationsources/marketingassistance

Center for InternationalTrade Expositions andMarkets, DTI, NGOs

Chambernetwork—local andinternational

Not specialized

Training Other NGOs andgovernment agencies

Good facilities andaccess to trainers;better quality

Higher priced thansubsidizedcompetitors

Financial services Other NGOs, informal andformal sources, lendinginvestors, banks

Not equipped to dolending operationseffectively andefficiently; smallfunding and ad-hocsystems

15

Chapter Three—Clients

CHAPTER THREECLIENTS

One reason that LCCI first began offering services to its members was to increase the appealof membership, particularly to SMEs. As a new service provider, the SeCen needs to build itscustomer base. Therefore, the study took a broad look at the demand for business services inCalamba, the area where the SeCen is located. The study investigated the SeCen’s currentMSME clients and LCCI’s sectoral association members through in-depth interviews withthe heads of the associations. The study also investigated the SeCen’s potential MSE clients,the MSEs of the Calamba area, particularly the telecommunications and administrativeservices, because of their proximity to the center. The survey gathered information aboutMSEs’ knowledge and use of telecommunications services so that recommendations could bemade on the mix of services that the Laguna SeCen should pursue in the future.

The information on current clients, the sectoral association members of LCCI, and the type ofbusinesses services that interested them was compared with that of MSEs in Calamba ingeneral. The comparison helps show which services and clients the Laguna SeCen has acompetitive edge in serving.

CURRENT CLIENTS

Although the Laguna SeCen offers services to big and small enterprises, both for membersand non-members, priority is given to its target clientele: MSMEs in Laguna and nearbytowns. Such SMEs are usually classified as light industries, including agri-based industriessuch as cut flowers, fruit and vegetable growers, and swine and fowl raisers. Cooperativesthat are direct members of the chamber are considered target clients; these include the DilaMulti-Purpose Cooperative (cut flowers), Lamot II Primary Multi-Purpose Cooperative (agri-based), Liliw Footwear Multi-Purpose Cooperative, and the Masilayan and Matalatala Multi-Purpose Cooperatives (agri-based). The target clientele also includes LCCI’s seven sectoralmember associations:

§ Association of Novelty Producers of Laguna. Most members of this association aremicroenterprises, with assets below P1.5 million (US$37,500). Membership grew from15 in 1993 to about 25 to 30 in 1998. Association members produce a wide array ofitems—paper boxes, wedding giveaways, Christmas decorations, baskets, woodenfurniture, clay fashion accessories, paper mâche products, handmade paper, tin and wireproducts, garments, and crocheted items.

§ Kalipunan ng mga Gawaan ng Sapin sa Paa sa Laguna. The footwear association hasapproximately 300 members that are all micro and small enterprises. It joined LCCI twoyears ago.

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§ Laguna Agro-Industrial Machinery Manufacturers Association. Although theassociation lists 16 members, these in fact include technical people who provide advice tothe member enterprises. Capitalization often falls below one-half million pesos(US$12,500).

§ Laguna Federation of Floricultural Associations. The cut flower sector has four cutflower associations and four cut flower cooperatives as members. All together, individualmembers of these organizations number more than 300. Most of them run small backyardoperations. The biggest flower farm covers an area of less than one hectare.

§ Laguna Food Processors and Exporters Association. There are approximately 20active members of the processed food association, all micro and small enterprises. Thisorganization joined LCCI in 1997.

§ San Pedro Garment Manufacturers Cooperative. This garments cooperative joinedLCCI two years ago. It has approximately 68 members, all micro and small enterprises.However, the cooperative is currently experiencing some organizational difficulties.

§ San Pedro Chamber of Commerce and Industry. The 70 members of the chamberrepresent a cross-section of big, medium, and small enterprises as well as varied industrylines, from manufacturing and trading to insurance and travel agencies. Small enterprisesinclude bakeshops, groceries, trading, and general merchandising firms.

In interviews, the heads of the sectoral associations articulated what they considered to be theneeds and priorities of the associations and their members. They believe that the most urgentneed now is to develop the production capacity of small enterprises and to upgrade skills,technology, and quality. This would enable small enterprises to grow. They would then havethe capacity to land bigger contracts and go into franchising, subcontracting, and exporting.They also mentioned that members need access to capital and referrals to agencies withdifferent services.

One common theme among the stated needs of the sectoral associations was access toinformation on the latest technology and on potential markets both in the Philippines andabroad. Sectoral heads believe that if this information is available, sectoral associationmembers will be able to improve their businesses. The association heads also emphasized thetype of information they need, rather than the type of technology needed. Importantinformation for them includes potential markets for their products, especially forentrepreneurs who want to venture into exports, new technologies (for the metal and cutflower sectors), and product development and quality control for the novelty sector.

Currently, few associations have research and development units. In the sectoral associationsinterviewed, most members gather information on their own and at their own initiative. Oneexception is the cut flower association, which secures information on the latest developmentsfor their members through association-sponsored seminars and field trips. Other sectoralassociations rely on government or private institutions to provide information on technology.The metal and cut flower sectors rely mainly on University of the Philippines in Los Banos.

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The novelty association contacts the Center for International Trade Expositions and Markets,Philippine Exporters Confederation (an association of Philippine exporters), and the DesignCenter of the Philippines for information on product design and development, quality control,and market trends. The different associations also are negotiating with the PhilippineChamber of Commerce and Industries to refer them to potential buyers abroad via theInternet.

All sectoral association presidents interviewed said that there is not much need forcommunication support facilities. Most members have their own telephones, fax machines,and e-mail, either in their offices or at home. Members without such facilities can easilymake use of nearby commercial business centers.

POTENTIAL CLIENTS—MSES OF CALAMBA

The study surveyed 100 randomly chosen, registered MSEs in Calamba. Basic informationon the profile of enterprises and respondents surveyed is summarized in Table 2.

Table 2: Profile of Surveyed Calamba MSEs

Type§ 52% trading§ 47% services§ 1% manufacturing

Age of business

§ 32% three or fewer years (18% lessthan one year)

§ 29% three to five years§ 39% more than five years

Ownership§ 33% male§ 19% female§ 48% family/joint

Estimated annual sales*

§ 47% less than P300,000 (US$7,500)§ 18% P300,001-P900,000

(US$7,500-22,500)§ 25% more than P900,000

(US$22,500)

No. of employees § 89% 10 or fewer§ 11% 11 to 25

Education of owner § 25% high school or less§ 75% at least some college

Monthly family income*

§ 35% P15,000 or less (US$375)§ 33% P15,001-40,000

(US$375-1,000)§ 12% more than P40,000 (US$1,000)

* Remainder did not know or refused to answer.Source: Calamba MSE survey.

By type of business, Calamba MSEs surveyed were about equally divided between sales andservices, with only one in manufacturing. In comparison, total registered establishments inCalamba consisted of 3,671 establishments, with 95 percent commercial (sales and service)and 5 percent manufacturing. The smaller proportion of manufacturing in the sample may beaccounted for by the exclusion of larger manufacturing enterprises that are present in the four

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industrial estates in Calamba. The type of establishments reported in the survey reflectsCalamba’s role as a center for trade and commerce for Districts 1 and 2 of Laguna.

Most of the enterprises seem to be fairly well established, as indicated by the number ofyears in business. Joint ownership (by husband and wife) was the most common form ofreported enterprise ownership, accounting for 48 percent of respondents. Most of theenterprises had annual sales of less than P300,000 (US$7,500), although 25 percent reportedannual sales of more than P900,000 (US$22,500). Enterprises surveyed consistedpredominantly (89 percent) of those that had 10 or fewer workers. Educational attainment ofrespondents is relatively high: 75 percent reported having at least some college education.

Only 13 percent of the respondents reported household incomes below the poverty threshold.This compares with the poverty incidence of 25.7 percent in 1997 for Region IV (of whichLaguna is part).

A comparison of the profile of the survey respondents in the areas of educational attainment,enterprise sales, household income, and enterprise ownership with other previous surveys ofmicroenterprises indicates that they represent the higher end spectrum of microenterprises. 9Previous surveys of the urban informal sector and microenterprises showed lower levels ofeducational attainment, higher proportions with lower incomes, and a predominance offemale-owned enterprises, which seems to be more common among subsistence enterprises.The fact that the sample consisted of registered enterprises also meant that their operationswere on a larger scale than those of average MSEs.

A comparison of the location of buyers and suppliers reveals that most enterprises in thesurvey do most of their business in the local economy. Most of the businesses interviewedhad locally based customers, with 86 percent having customers within different barangays10

within the municipality. About 60 percent reported having customers outside of Calamba.Only 35 percent reported having customers outside of Laguna, while only 3 percent hadcustomers in a different country.

In terms of suppliers, however, more businesses relied on suppliers outside the province thanwithin the province. A higher proportion of enterprises engaged in sales or trading hadsuppliers that were outside of the province. This is consistent with the nature of theirbusinesses, which dealt with manufactured consumer goods such as garments and generalmerchandise including grocery and corner store items.

9 Alonzo, Ruperto P., and Abrera-Mangahas, Maria Alcestis. “The Informal Sector in Metro Manila: Findings

from a Recent Survey.” Geneva: International Labor Organization. 1990. Chua, Ronald T. “Impact of Accessto Credit on the Poor: Research Design and Baseline Survey for a Longitudinal Study,” Study prepared forthe Australian Agency for International Development. Brisbane: The Foundation for DevelopmentCooperation. 1998.

10 A barangay is the smallest political unit in the Philippines. A municipality is divided into barangays.Analogous to a large neighborhood, it has a minimum of 5,000 people.

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Ownership and Awareness of ICT Equipment

Part of the hypothesis of the study was that the demand for common or publiccommunication services would decrease as enterprises gained access to equipmentownership. The survey thus inquired about telecommunication equipment ownership amongrespondents.

Survey results indicated that 71 percent of MSEs owned a landline. Another 12 percent statedthat they were waiting for their phones to be installed. Only 17 percent did not have alandline connection. This is consistent with the relatively higher phone-line density inCalamba relative to other provinces. Ownership of other types of equipment wassignificantly lower when compared with landline phone service (see Table 3). Thirty-sixpercent reported having or owning a cellular phone. Another 2 percent were waiting for theirconnection. Interestingly, 19 percent of respondents reported owning computers, withanother 9 percent waiting for their units to be delivered.

Table 3: Calamba MSEs—Information and Telecommunications Equipment Ownership

Ownership Phone Fax CellularPhone Pager Computer Internet

Dial-UpOwned 71% 11% 36% 5% 19% 3%To be installed 12% 5% 2% 0 9% 2%Not owned 17% 84% 62% 95% 72% 95%Source: Calamba MSE Survey.

Except for Internet dial-up and fax machines, there was a 100 percent awareness of theequipment mentioned. Twenty-four percent of total respondents were unaware of the faxmachine. Eighty-three percent were unaware of Internet dial-up.

Except for cellular phones, the most common reason cited for not owning equipment was thatit is not needed by their businesses. The most common reason for not owning cellular phoneswas that they are expensive or entailed additional expense. For the cellular phone and pager,the second most frequently cited reason for not owning was the availability of substitutes orother services. For the fax, computer, and pager, the second most frequently cited reason wasthat this equipment entails additional expenses or is too expensive for their businesses.

Awareness, Usage, and Image of Selected Business Development Services

An important issue that business development services suppliers face is the range of servicesto offer MSEs. The survey asked Calamba MSEs whether they knew about selectedcommunication, information, and business development services, whether they need theseservices, and whether they have used or purchased them.11 Respondents were asked if they“must have” a service without specifying where they wanted to get the service. In contrast,

11 This technique for analyzing consumers’ awareness and usage of services is from Dr. Ned Roberto, User-

Friendly Marketing Research, Life Cycle Press (Asia), 1996.

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respondents were asked if they had used a service only in a common service facility. Theseservices are listed in Figures 1 and 2.

0

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SEs

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Figure 1: Awareness, Usage and Perception of Need for Communication Services

% Aware Must Have as % of Aware Ever Used as % of Aware

0

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Figure 2: Awareness, Usage and Perception of Need for Business Development Services

% Aware Must Have as % of Aware Ever Used as % of Aware

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Calamba MSE respondents’ level of awareness of basic telecommunications services, such asphone, fax, and paging services, is relatively high. There is a decreasing level of awarenessfrom local calls to domestic long distance to international calls. The trend also holds true forfax service. The awareness level of messenger services also is high. Awareness of businessregistration services and messenger/courier services is relatively high. However, theawareness level of Internet-related services is low. The survey also revealed a low level ofawareness about business development services and information services among CalambaMSEs.

Despite the high awareness, MSEs do not see most services as essential: only local callservice and business registration have more than 70 percent of aware MSEs classifying themas services that they must have. All other services have “must have” proportions that arelower than 50 percent. Actual paid usage of various services also is low.12

This matches the respondents’ assessment of the need to have the services. Only savings andcredit and business registration have usage rates of more than 50 percent.13

For local calls, the main reason for not purchasing is the availability of landlines or access tosubstitutes. Only 21 percent stated that they do not need the service. For domestic long-distance calls, the reasons for not using are roughly split between having their own landlineor substitutes and not needing the service. For business registration, those who do not pay forsuch services either do it themselves or are not registered. The most common reason for notpurchasing for the other services is that they do not need it because their businesses aresmall.

As can be seen in Table 4, most of the Calamba MSEs that paid for phone services outside oftheir place of business use public calling offices. They also use stores in their neighborhood,pay phones, and shopping centers.

12 This is actual paid usage in common service facilities. It does not take into account MSEs who use their own

equipment or have in-house capability. Some MSEs may have reported that they “must have” a service butdo not use the service from a common service facility because they have their own equipment, particularlyfor phone and fax. For business development services, some MSEs may have reported that they “must have”a service but do not purchase it either because of a lack of budget or lack of access. See Table 3 for moreinformation on the reasons for not purchasing various services.

13 The low awareness of credit and savings service may be because respondents interpreted the question asfinancial services from formal institutions such as government, NGOs, and banks rather than includinginformal sources of credit. Anecdotal evidence shows that most MSEs in the Philippines are aware ofinformal sources of credit.

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Table 4: Calamba MSEs—Service Purchase Location and Reason for Nonpurchase

Service Where Service Purchased(for users)

Main Reason for Not PurchasingPublic Service (% of non-buyers)

Local call Public calling officesNeighborhoodShopping centersPay phones

63%17%10%10%

Own land line (or neighbors do)Not needed

74%23%

Domestic long-distance call

Public calling officesPay phonesNeighborhoodOthers

80%10%5%5%

Own land line (or neighbors do)Not needed

46%51%

Businessregistration

DTI/govt. office 92% Do it personally; c/o othersNot registered

53%45%

Services providinginformation

Shopping mallsNeighborhoodDTI/govt. offices

3*1*1*

Small business—do not need serviceUse substitutes

15*3*

Technical training No data Small business—do not need serviceFree adviceNo budgetNot available

69%21%5%5%

Managementtraining

No data Small business—do not need serviceFree adviceNo budgetNot available

73%8%14%5%

* Actual number due to small sample base. Source: Calamba MSE Survey.

In summary, except for basic telecommunication services, respondents’ level of awareness ofinformation and business development services is low. Among those who were aware of theservices, their assessment of their own need to have such services is also low. The low “needto have” rating also translated into a low usage rate. One possible explanation for this is thatCalamba MSEs are survival-oriented businesses engaged primarily in trade and services anddo not see the need for business development services. What this means for a prospectivebusiness development services provider is that a lot of effort will have to go intocommunicating the benefits of these services to increase demand. Another possibility is topromote trial usage of such services so that potential clients come to appreciate the value ofsuch services.

Perceived Impact of Services on Profit

Overall, the pattern of MSE perception of positive impact on enterprise profits from businessservices followed those of the level of awareness and their assessment of importance and“need to have.” All respondents were asked if access to the services in Table 5 has increasedtheir profits. Communication services as a whole were perceived to have the greatest impacton profit, with 40 percent of respondents stating that access to communication servicesdefinitely increased their profits. This is followed by administrative services at 23 percentand information services at 16 percent.

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Table 5: MSE Perceived Impact on Profit of Services

N = 100 Communication* AdministrativeServices**

InformationServices***

Definitely increase 40 23 16Probably increase 25 28 35Maybe increase 24 24 35No increase 11 25 14

* Phone calls, fax, pager, e-mail, messenger/courier. ** Message-taking service, business registration, computer rental. *** Internet usage; Internet dial-up; information on markets, customers, etc. Source: Calamba MSE Survey.

Potential New Services

To test the potential of the Laguna SeCen’s adding more services using modern ICT, thesurvey conducted two product concept tests on Internet access and Web page developmentand hosting.14 The Internet was described as a tool for gathering information—for example,on prices, production technology, and suppliers. Of the MSEs surveyed, 8.5 percent showed adefinite interest in purchasing Internet access services. This represents a potential initialmarket size of 224 enterprises in Calamba alone.15 Price sensitivity tests, among thosedefinitely or probably interested, show that MSEs are not aware of current prices for Internetaccess: 49 percent of those surveyed are willing to pay P195 (US$4.88) per hour, eventhough the current price from private providers is only approximately P60 (US$1.50) perhour.16 Based on interviews with sectoral association members, it is the information on theInternet, rather than access to the Internet, in which MSEs are interested.

Five percent of those surveyed expressed definite interest in having a Web page as a meansof advertising to new markets. Those definitely or probably interested (38 percent) wereasked about price. The price sensitivity test showed that the revenue maximizing price forWeb page development based on the survey is P1,950 (US$48.75) per page as compared withthe current industry standard of approximately P1,500 (US$37.50).17 From the survey, therevenue-maximizing price for hosting a Web page was P2,800 (US$70) per month, comparedwith the current industry standard of approximately P2,000 (US$50) per month. The productconcept tests indicate some potential for these modern ICT services, most likely because theyassist MSEs in receiving information and reaching new buyers. The tests show not only thatan initial market exists for these products among MSEs but also that MSEs are willing to payprices which will allow a provider to make a profit.

14 A product concept test introduces respondents to a product or service with which they are not familiar by

describing the product and its benefits. Respondents are then asked questions about their interest in buyingthe product. This technique is used frequently by private sector companies to assess potential consumeracceptance of new products.

15 See Appendix C for the calculation of the initial market size.16 This technique for testing consumers’ price sensitivity and determining the revenue maximizing price is from

Dr. Ned Roberto, User-Friendly Marketing Research, Life Cycle Press (Asia), 1996.17 See Appendix C for the calculation of the revenue-maximizing price.

24


COMPARISON OF CURRENT AND POTENTIAL CLIENTS

There are marked contrasts between the SeCen’s current customer base and its potentialcustomers for ICT services in Calamba. MSEs in Calamba have very aware of and useservices that help them conduct daily business, such as telephone and courier service. Theyare currently purchasing these services from private businesses in Calamba. The sectoralassociation members do not need these “transaction facilitation” services as much becausethey generally own their own basic communications equipment, such as a landline and a faxmachine.

The SeCen’s current customers want higher value-adding services that will help them growand develop their businesses. The MSEs in Calamba generally have a low awareness andperception of need for business development services such as training, information, andmarketing assistance. This may be because these MSEs are focused mainly on businesssurvival, rather than on growth. The sectoral associations have a higher level of awarenessand perception of need for business development services. A possible explanation is thatmost sectoral association members are engaged in the production and trade of goods, andthey target markets within a wider geographical radius than the Calamba MSEs, which areprimarily focused on trade and services. In fact, a number of sectoral association membersare exporting. The sectoral association members’ interest in larger markets, bettertechnology, and higher productivity indicates that they are more growth oriented. Thesegrowth-oriented businesses show more interest in business development services than thesurvival-oriented MSEs of Calamba.

If the SeCen were to serve both groups, it would have to offer them different services thatneed different internal capacities to provide profitably. This is beyond the capacity of theSeCen. Instead, it chose to focus on a smaller set of customers with similar needs.

25

Chapter Four—Financial and Operational Information

CHAPTER FOURFINANCIAL AND OPERATIONAL INFORMATION

REVENUE AND COST ANALYSIS

According to the Laguna SeCen’s business plan, the SeCen expected to generate most of itsrevenue for 1997 and 1998 from marketing assistance activities for SMEs and from trainingseminars. (See Tables 6 and 7.) This is consistent with the center’s belief that it is the abilityof SMEs to sell their products profitably that fuels demand for services. It supports theirdecision to focus on higher value-adding services that help SMEs develop their businesses:this is where the SeCen can make substantial revenues over time.

Currently, the cost structure allows the SeCen to generate proportionally more profit frombusiness support services, particularly business registration. However, the SeCen has kept theprice for marketing assistance low so that it can build its client base. It expects both gross andnet revenues from marketing to increase when it starts charging a percentage of sales fromtrade fairs and other marketing activities. Despite the 26 percent of net revenues projected tocome from business support services in 1998, the SeCen does not see the same potential forincreasing gross revenues from business registration, administrative and secretarial services,and communications services. It is not keeping these prices artificially low and does not thinkit can raise the price much in the future or increase volume significantly.

Table 6: Estimated Revenues by Type of Activity for Five Months(August to December 1997)

Net RevenuesRevenues % of Total

RevenuesDirectCosts Pesos U.S.

Dollars

% of Total NetRevenues

Business training P14,000 3% P26,000 (12,000) $(300) (5%)

Business consultation P20,000 5% 0 20,000 $500 9%

Business registration P12,000 3% 0 12,000 $300 6%

Bookkeeping/accounting P5,000 1% 0 5,000 $125 2%

Secretarial services P10,000 2% P5,000 5,000 $125 2%

Relending P8,000 2% P3,000 5,000 $125 2%

Credit facilitation P10,000 2% 0 10,000 $250 5%

Financial advice P5,000 1% 0 5,000 $125 2%

Trade fairs/exhibits P260,000 57% P150,000 110,000 $2,750 50%

Subcontracting fairs P100,000 22% P50,000 50,000 $1,250 23%

Marketing advice P10,000 2% 0 10,000 $250 4%

Total revenues P454,000 100% P234,000 P220,000 US$5,500 100%

Annual equivalent P1,089,600 P561,600 P528,000 US$13,200

Source: Swisscontact.

26


Table 7: Revenue Projections for 1998 by Type of Activity

Net % of TotalGross % of Total

Revenues CostsPesos U.S. Dollars Net Revenue

Sales and display P12,000 <1% 0 12,000 $300 3%

Trade fairs andexhibitions

P1,500,000 45% P1,350,000 150,000 $3,750 34%

Marketing linkage/subcontracting

P500,000 15% P450,000 50,000 $1,250 11%

Training/consulting P1,070,000 32% P977,000 93,000 $2,325 20%

Financial services P25,000 1% 0 25,000 $625 5%

Business supportservices*

P248,000 7% P137,000 111,000 $2,775 26%

Subtotal P3,355,000 100% P2,914,000 441,000 $11,025 100%

Personnel P431,000

Operating costs P148,000

Total P3,355,000 P3,493,000 P(138,000) US$(3,450)

*Includes business registration, administrative and secretarial services, and communications services.Source: Swisscontact, Laguna SeCen.

Financial data to date show that the SeCen will not reach its revenue targets in 1998. TheAsian financial crisis has seriously dampened demand for business development services. Inaddition, the projections appear to be overly optimistic in terms of the growth in revenuesover the SeCen’s 1997 performance.

Swisscontact provided the financial subsidy necessary to establish the SeCen. TheSwisscontact approach for assisting SME service centers in becoming financially andoperationally sustainable consists of three main components: technical advice, humanresource development, and financial support. In the case of the Laguna SeCen, Swisscontactprovided three types of time-bound financial support. The first is a one-time subsidy thatcovered 50 percent of the center’s estimated incremental investments for office improvement,additional office equipment (phone, fax, and printer), and furniture. The second consists ofan incentive that is tied to the gross or net revenues (depending on the service) that theservice center actually generates from the provision of services. With the exception oftraining, which is based on gross revenue, the incentive is equivalent to 100 percent of actualnet revenues generated on mutually agreed services or a ceiling amount, whichever is lower.Finally, Swisscontact also provides a subsidy to cover part of the SeCen’s operational costs.This subsidy is to be gradually phased out over a period of three years (see Table 8).

27

Chapter Four—Financial and Operational Information

Table 8: Budget and Level of Swisscontact Support

August-December 1997 1998Pesos US$ Pesos US$

Laguna SeCen Financial Basis for SupportEstimated investment in equipment P101,000 US$2,525 - -Estimated net revenues P220,000 US$5,500 P441,000 US$11,025Estimated personnel and other operatingcosts

P274,070 US$6,852 P599,000 US$14,975

Net surplus/(loss) P(54,070) US$(1,352) P(158,000) US$(3,950)Swisscontact SupportInvestment in equipment P50,500 US$1,375 - -Support/investment 50% 50% - -Swisscontact revenue-based incentive P136,000 US$3,400 P180,000 US$4,500incentive/net revenue 62% 62% 41% 41%Swisscontact operating cost subsidy P130,000 US$3,250 P315,000 US$7,875Subsidy/operating costs 47% 47% 53% 53%Source: Swisscontact.

OPERATIONAL INFORMATION

Structure. LCCI is a membership-based organization headed by an elected board of 11directors. Officers and directors of the chamber are business and industry leaders recognizedby both government and private officials. The SeCen is under the LCCI board.

Human Resources. Staffing for the SeCen is kept lean: a center manager, a marketingofficer, one support staff, and a utility person. Swisscontact currently supports all stafftraining.

Budgeting. Projected income statements are generated annually in consultation withSwisscontact and other donors.

Pricing. The SeCen determines prices based on a review of the prices of similar servicesfrom other institutions or private companies.

Product development. LCCI’s approach to deciding the range of services for SMEs has sofar been informal and opportunistic. Ideas and projects come from various sources: members,other chambers, donors, and opportunities for collaboration with other organizations.Indications of demand are gathered through interaction with LCCI members during variousmeetings and forums that the chamber or the SeCen conduct. One major source of input wasa province-wide SME conference held in August 1998. Demand is assessed through testmarketing. Services are offered, then actual demand for such services is reviewed and futureplans are revised accordingly. This approach is possible because of the SeCen’s closerelationship with its client base.

29

Chapter Five—Conclusions

CHAPTER FIVECONCLUSIONS

SWOT ANALYSIS OF THE BUSINESS MODEL

As a business center, the Laguna SeCen is still in transition. Because it was established as aprofit center less than two years ago, management is still learning how to act like a business.Nevertheless, the organization has made progress toward good business practices.

Table 9: SWOT Analysis of the Laguna SeCen

Strengths§ Use of financial analysis§ Close relationship with customers§ Professional staff and accountability§ Low fixed costs§ Wide network of on-call suppliers§ Track record in training

Weaknesses§ Lack of market assessment§ Lack of focus§ Poor location for basic services§ Limited geographical reach

Opportunities§ New services for growing SMEs

Threats§ Subsidized services from other

suppliers§ Established, specialized suppliers

Strengths

Use of financial analysis in decision making. Although the SeCen is not financiallysustainable yet, regular financial statements are produced, and the management uses these indecision making. This analysis is informing changes in service mix and pricing.

Close relationship with customers. Because the SeCen is under a membership-basedstructure, management gets frequent feedback and suggestions from customers. This frequentcontact helps the SeCen adjust its service mix and features.

Professional staff and accountability structure. The commitment of organizationalresources to have professional staff has allowed the Laguna SeCen to function and grow. Theseparation of the SeCen from LCCI makes the organization accountable to cover costs andgives the center’s manager effective control over resources and operations.

Low fixed costs. The Laguna SeCen has a small staff and keeps overhead costs to aminimum. Most of the costs for higher value-adding services are variable, which lets theSeCen lower its risks.

Wide network of on-call suppliers. The Laguna SeCen, by virtue of its attachment to LCCI,is linked to a wide network of businesses. The network gives it access to a pool of resource

30


persons needed for various services. The fact that the resource people often come from otherbusinesses is one of the SeCen’s key selling points.

Track record in administering training programs. The Laguna SeCen has beenreasonably successful in organizing and administering various training programs. Its pastperformance in managing training contracts for government agencies and other organizationshas given it a good reputation not only among government and donors but also amongclients.

Weaknesses

Lack of market assessment. The SeCen’s system for determining its service mix is still adhoc and based as much on donor demands as on consumer demand. Market assessment isinformal and not sufficiently systematic.

Lack of focus. The SeCen service mix is very broad. The services are not defined by asingle, clear, and demonstrable customer benefit. The SeCen is starting to address thisweakness by focusing on a narrower set of services.

Poor location for basic services. One of the keys to selling communications andadministrative services is a visible location in a busy pedestrian traffic area. The SeCen islocated off the street in a bank compound. Thus, it fails to attract many new customers for itsbasic services, particularly because there is ample competition from private sector suppliersin better locations around Calamba.

Limited geographical reach. The Laguna SeCen has minimal geographic reach outside ofCalamba. Its client base is located throughout the Laguna province. The SeCen is limited bya lack of physical presence in other areas that would enable it to respond better to itscustomers.

Opportunities

New services for growing SMEs. The Laguna SeCen is establishing a good customer baseof growing SMEs that want services to help them improve products and penetrate newmarkets. Modern information and communication technologies provide the opportunity todevelop new services for this market.

Threats

Subsidized services from other suppliers. The SeCen’s training services compete withsubsidized training courses from the government and other NGOs. The distorted marketmakes it difficult for the SeCen to charge prices that will lead to financial sustainability.

31


Established, specialized suppliers. Established specialized suppliers, many of them privatesector companies, offer the same services that the SeCen provides. These specializedsuppliers are focused on providing a limited range of high-quality services. They are oftenmore efficient and better at marketing their services than the SeCen. The SeCen is trying tocompete as a one-stop shop that is responsive to a range of business services needs.However, this is not always sufficient motivation for customers to change from their currentsuppliers for business services.

THE FUTURE OF THE LAGUNA SECEN

The Laguna SeCen is focusing increasingly on marketing assistance and training. Although itinitially planned to provide communication services (telephone, fax, e-mail, Internet access,and photocopying) as well as administrative services on a more significant scale and on acommercially viable basis, these services have since been relegated to the background as arange of supportive and incidental services. The SeCen is focusing on higher value-addingservices to build its customer base. Its executive director believes that those services whichhelp MSEs grow their businesses through improving internal operations and gaining accessto new markets are most likely to create loyal clients and attract new customers. The abilityof SMEs to sell their products or services profitably also is key to sustaining SMEs’ demandand ability to pay for business services. The analysis below of the SeCen’s competitiveposition vis-à-vis various types of services and customers bears out the wisdom of itsexecutive director’s decisions.

Prospects for Basic Telecommunication Services

Although awareness of and need for basic phone services are high, does this represent anopportunity for a business development services provider like the Laguna SeCen? TheSeCen’s current SME clients do not need basic telecommunications services because theyhave access to their own equipment. The SeCen’s potential MSE customers in the Calambaarea are purchasing telecommunication services from private companies. The argumentsbelow explain why the SeCen does not have a strong competitive advantage in basictelecommunications services.

Economics of the public calling office. If a business plans to rely on phone service as asignificant source of revenue, it will not be able to compete effectively unless it becomeseither a company-owned PCO or a franchisee. The main reason is that PCOs and franchiseesearn a share of the toll charges on calls from their offices. Thus, to get the same returnwithout being a franchisee, a prospective service provider would have to mark up the price ofcalls significantly above the regular toll charges, making the price uncompetitive. TheLaguna SeCen did not think it was worth paying the franchise fee because communicationservices were not projected to provide sufficient revenue, and management does not considertelecommunication services as a focus of the center. If a phone service supplier is not afranchisee, costs must be extremely low so that the price mark-up is minimal. The servicealso must be offered in a convenient location that would make the premium worth the cost to

32


the customers. The SeCen has neither. The center’s manager believes that it should focus itsefforts on higher value-adding services and leave the provision of basic communication andadministrative services to private entities and individuals who can operate more cost-efficiently because of lower overhead costs. For example, along the various mainthoroughfares in Laguna, one can observe the proliferation of stores and households offeringthe use of cellular phones for a fee.

SeCen client base. The SeCen’s client base also suggests that it should focus on highervalue-adding services. LCCI’s membership consists primarily of MSMEs in manufacturing,with few or no microenterprises in trade and services. Most members already have their owntelephones and fax machines. Findings from several needs assessments indicated thatmembers consider training, market assistance, and access to technology as being moreimportant than other services. In addition, public calling offices must serve a broad area-based market, which includes entrepreneurs, families, students, and other types of customers,to generate a high volume. The SeCen, on the other hand, serves a geographically dispersedmarket niche: growing SMEs. This market niche fits better with higher value-adding businessdevelopment services.

Revenue potential. For the SeCen, higher value-adding services have more potential togenerate revenue. The SeCen has found that a trade fair can generate sales revenues ofseveral million pesos, which is far more than can be generated from the provision oftelephone, fax, and related services in a similar timeframe. Providing communicationservices is a high-volume, low-margin activity. This contrasts with what is perceived to behigher margin activities such as the conduct of training and commissions and fees from tradefairs and market linkage activities. Because the SeCen is pursuing a small market niche, low-volume, high-margin services offer more potential for generating revenue.

Prospects for Modern ICT-Based Services

Internet-based information services. The product concept test on the Internet and in-depthinterviews with sectoral association members indicate that there is a market for informationservices for growth-oriented SMEs. Table 1, however, shows that the SeCen is less equippedto provide detailed technical or even market information than other more specializedagencies in the area. The SeCen does have an excellent network, through LCCI and itsconnections, and existing technology through which it could generate specific informationneeded by sectoral associations. Information services would fit well with the other serviceson which the SeCen is focusing because they would cater to growth-oriented businesses’demand for assistance in diversifying products and markets. Therefore, there is anopportunity for the SeCen to be an information broker.

The main role of the information broker is not to be the source of specific information but torespond to requests for specific information by tapping into a network of specializedinformation sources. For the most part, the SeCen could now reach these sources quickly andefficiently via e-mail or the Internet. SeCen staff would need to acquire the knowledge and

33


skills to locate information quickly for customers through their network of specializedinformation suppliers on-line or through e-mail. The model is illustrated in Figure 3.18

Figure 3: The SeCen as an Information Broker

Web page development and hosting. Web page development and hosting also may presentan opportunity for the Laguna SeCen to use modern ICT to provide business services to itsclients. Five percent of MSEs surveyed in Calamba expressed interest in developing a Webpage. These MSEs were interested in the benefits of attracting new customers to theirbusinesses through a new form of advertising. Although sectoral association members arevery different from the businesses surveyed in Calamba, they also may be interested in thisbusiness benefit. Many sectoral association members are trying to penetrate new marketsoutside of Laguna. Having a web page may help them reach new customers. If it were tooffer Web page development and hosting, through a connection to an Internet serviceprovider, the Laguna SeCen would have an opportunity to offer its niche market—growth-oriented SMEs—another service that would help them build their businesses by reaching newmarkets. The SeCen should conduct a product concept test on Web page development andhosting with its current customers to learn if this is a good opportunity.

To provide this service, SeCen would need to invest in upgraded computer hardware andWeb development software. It also would need to make a significant investment in upgradingits staff’s skills. If a feasibility study shows that the expected volume for this service is toolow to justify the investment, the SeCen could instead refer clients to an established Webpage developer and collect a referral fee.

Recommendations for SeCen Service Mix and Strategy

The previous discussion on the Laguna SeCen’s prospects for basic telecommunications andmodern ICT-based services provides insights into the importance of differentiating between

18 For a more detailed discussion of this business model, see “Models for Internet-Based Information Services

for Micro and Small Enterprises in the Philippines,” which is part of this series of papers.

Information

SectoralAssociation

SpecializedInformation

Provider

LagunaSeCen Sectoral

Association

Individual SME


Provider


Provider

Information

34


transaction facilitation services and business development services.19 Transaction facilitationservices are those that help entrepreneurs conduct daily business. Business developmentservices are those that help entrepreneurs improve and expand their businesses. The SeCen’sgrowth-oriented SME client base is looking for business development services. Theygenerally no longer need basic transaction facilitation services through a common servicefacility. (See Table 10.) Similarly, the SeCen’s internal capacity is geared toward highervalue-adding services that are delivered on a high-margin, low-volume basis.

Table 10: Demand and Competitive Situation for Business Services

ServiceEnterprise Type

TransactionFacilitation Services

Business DevelopmentServices

Microenterprises,local economy based

High awareness andneed, but commercialsuppliers already existin “profitable” locations

Low awareness and need, butlittle competition because of lowdemand and profitability

Growth-orientedMSEs

High awareness andneed, but usuallyalready have access tosuch services

High awareness and need, butsome competition fromsubsidized and/or specializedsuppliers

Continuing the trend toward a focus on marketing and training would capitalize on theSeCen’s strengths and customer base. It would provide the SeCen’s clients with a single clearbenefit—reaching new markets through both improved products and increased exposure topotential customers.

Dropping all transaction facilitation services, such as phone, fax, and photocopying, wouldallow the SeCen to focus on higher value-adding services. (This would not include droppingbusiness registration services, which helps growth-oriented enterprises develop theirbusinesses by joining the formal sector.) It also would be helpful for the SeCen to dropmicrofinance services. The SeCen has no competitive advantage in this type of services, andthey do not fit with the benefits its clients are seeking. Instead, the SeCen could providereferrals to other microfinance providers.

With this clearer client benefit and niche market, the SeCen could then hone its internalcapacity, service features, and marketing strategy to meet the demand of this market. (SeeTable 11.)

19 For a detailed discussion on these types of services, see MBP’s “Information and Communications Services

for Micro and Small Enterprises in the Philippines: A Synthesis Paper,” the introduction to this series ofpapers.

35


Table 11: Summary of Laguna SeCen Business Model

Component Laguna SeCen—Business and Enterprise Skill DevelopmentMSE customerbenefit

§ Grow and develop businesses§ Long-term benefits§ High value adding

Customers § Businesses exclusively§ 50+% SMEs, remainder larger businesses§ Mainly manufacturers

Service type § Business specific§ Customized for groups of business clients (e.g., subsector specific)

Current services § Training§ Marketing assistance§ Financial assistance§ Business support (including transaction facilitation)

Recommendedchange inservices

§ Drop transaction facilitation§ Change to referral to financial services§ Add information provision and possibly Web page development

Market type § Niche§ Low volume§ High margin§ High unit price

Market buildingstrategy

§ Increasing target clients’ awareness of service benefits§ Subsidy to induce trial§ Building clients’ businesses to increase capacity to pay for services to

build retentionOwnershipstructure

§ Nonprofit association§ Membership based

Financialsustainabilityissues

§ Increasing demand from specific client group is key§ Several year investment needed in development of customer base

and services

Internal capacityneeded

§ Rapid adaptability to changing needs of relatively small client base§ Showing value of services to customers§ Knowledge is important§ Highly skilled staff (or resource persons) for service delivery§ Niche marketing to specific business customers

A-1

APPENDIX A

BRIEF DESCRIPTION OF THE CALAMBA CONSUMER SURVEY

A-2

A-3

BRIEF DESCRIPTION OF THE CALAMBA CONSUMER SURVEY

The MSE survey makes use of tools from consumer-applied market research. In trying tounderstand the nature of MSE demand for ICT-based services in Calamba, the consumerresearch tried to determine the extent of information and communications equipmentownership. For some services, such as telephone calls, faxing and computer services, andInternet dial-up connections, it is expected that equipment ownership or service access willeffectively decrease the potential demand for using common service facilities such as publiccalling offices or Internet cafés.

The research determined the MSEs’ level of awareness, the extent and manner of actualusage, the perception of importance, and the need to have various information,communication, and business development services. The survey also provides data that allowestimates of market size for particular services to be made. This information is useful indetermining the relative attractiveness of a given service in terms of its revenue potential.The concept tests exposed MSEs to Internet access and Web page hosting and developmentto determine the potential market size as indicated by respondents’ willingness to use theservice. The tests provided information on prospective consumers’ price sensitivity that isuseful for deciding pricing for specific services.

SURVEY OBJECTIVES

1. Determine extent of information and telecommunications equipment ownership.

2. Assess awareness, usage, and importance of various information and communicationtechnology and business development services as input to the service mix of the LagunaSeCen.

3. Conduct product concept tests on Internet access and Web page use to determinepotential market for these modern ICT-based business services.

4. Obtain MSEs’ assessment of impact of information and communication technology onbusinesses.

SURVEY SAMPLING CONSIDERATIONS

Choice of area. Calamba was chosen as the area for the survey for the following reasons:

§ Calamba is where the Laguna SeCen is located. Part of the objective was to find outwhether opportunities exist for the Laguna SeCen to expand its range of services toenterprises in Calamba.

A-4

§ Calamba is an urban municipality. It was expected that the results of the survey wouldprovide an interesting basis for comparing the situations between urban and peri-urbanareas (PCO and cellular phone surveys were conducted under the same study).

Sample size. The sample size of 100 gives a margin of error of plus or minus 10 percent anda confidence level of 95 percent, which provides a fairly reasonable level of accuracy andconfidence level for most estimation purposes.

Respondents. Micro and small enterprises were defined as those registered businesses with25 or fewer workers. Respondents were randomly chosen from a list of businesses registeredwith the Calamba municipal office, which differentiates this from the PCO survey, which is asurvey of users. The Calamba survey is an area-based survey.

The use of registered businesses as the sampling frame also effectively excludes the informalsector (i.e., unregistered) enterprises, which fall in the lower spectrum of microenterprises interms of scale of operations and employment. This exclusion is consistent with the study’sobjectives to look at information, communications, and business development services thatare hypothesized to be useful or appropriate to more growth-oriented enterprises in the microand small enterprise spectrum.

Generalizability. Inasmuch as the sample was randomly chosen, the results of the surveycan be generalized to the population of MSEs in Calamba as defined.

B-1

APPENDIX B

HISTORY OF LCCI AND LAGUNA SECEN

B-2

B-3

HISTORY OF LCCI AND LAGUNA SECEN

An understanding of LCCI and how it decided to create the Laguna SeCen provides a usefulcontext for understanding the position of the SeCen now. Since its formation in 1975, LCCIhas experienced major changes. Three key changes led to the separation of the LagunaSeCen: revisions in ownership structure, an increase in attention to SMEs, and an increase inthe range of services offered to SMEs.

OWNERSHIP STRUCTURE

There was an increasing recognition of the need for the chamber to have a distinctorganizational identity separate from whoever was acting as president. This was backed upby changes in the organizational structure. From 1975 to 1994, the chamber only had ad-hocand voluntary staff attached to whoever was chamber president at the time. In 1993, thechamber decided to set up a distinct secretariat with a full-time officer in charge and with itsown separate office. Additional staff were eventually added to the chamber secretariat. Thesechanges were capped by the decision to spin off the Laguna SeCen as a distinct profit centerin 1997, different and separate from the LCCI Secretariat. This last move also reflected thechamber’s increasing awareness of the need to be demand led and sustainable.

With the separation, the LCCI secretariat continued to take charge of the chamber’s financialand administrative affairs, membership maintenance and expansion, advocacy, andmanagement of special projects. LCCI designed the Laguna SeCen as the chamber’s servicedelivery arm (see Figure B-1).

Figure B-1: LCCI Organizational Structure

LCCI

Secretariat Operations Laguna SME SeCen

♦ Advocacy ♦ Training/seminars♦ Special projects ♦ Business support services♦ Membership recruitment ♦ Financial assistance and retention ♦ Marketing assistance

Under the new structure, the SeCen has its own staff and budget and has to raise its ownrevenues entirely from fees for services rendered. Before the separation, businessdevelopment services were partly subsidized by membership fees.

B-4

The German Federation of Small Business and Skilled Crafts (ZDH) was instrumental in themove to have an independent secretariat for the chamber. An apex body of German smallbusiness sectors, ZDH extended grants for the purchase of office equipment and shoulderedpart of the secretariat staff’s salaries. It also helped to set up LCCI’s training arm, the LagunaBusiness Institute, in cooperation with the Dr. F. Limcaoco Foundation.

In 1997, LCCI started cooperation with Swisscontact, a Swiss NGO engaged in strengtheningthe provision of business support services for the development of SMEs. With support fromSwisscontact, LCCI conducted a study on establishing a business center in the first half of1997. The concept called for establishing a separate division within LCCI to be the primaryservice delivery arm to cottage, small, and medium-sized enterprises. A major impetus forseparating the provision of business support services was to test whether a service center forSMEs could become self-sustaining. The LCCI board approved the proposal in July 1997.Swisscontact committed to support the business center by providing financial support,technical advice, and human resource development.

IMPORTANCE GIVEN TO SMES

An increasing awareness of the importance of SMEs prompted LCCI to encourage them tobecome chamber members. The chamber amended its constitution and bylaws in 1993 andadded sectoral membership and direct SME membership as new membership categories.LCCI made the annual membership fees for direct SME and sectoral members lower than forregular members. Membership fees are P3,000 (US$75) per year for regular members,P1,000 (US$25) per year for direct SME members, and P1,500 (US$37.50) for sectoralmembers. A board position of Vice President for Sectoral Affairs also was created torepresent the chamber’s sectoral members. As Table B-1 shows, these changes successfullyincreased SME membership.

Table B-1: LCCI Membership Growth

1995 1997 Oct. 1998Regular members 75 92 107Sectoral association members 6 7 7Total sectoral member base 300 300 600SME direct members - 42 98

Source: LCCI records.

Several factors led LCCI to give increased attention to SMEs. First, LCCI was influenced byZDH’s strong thrust for SMEs. Second, the Department of Trade and Industries in Lagunawas then looking for an organization that could help it address the needs of SMEs. DTI–Laguna contracted the chamber to perform some of its functions, such as organizing trainingseminars. Third, the number of SMEs in the province was growing because of a steady influxof commerce and industry to Laguna. This meant that the chamber needed to have SMEmembers to be considered a legitimate representative of the business sector in Laguna.Finally, on a global and national scale, SMEs were being given renewed attention. For

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example, the Philippine government passed a law called the Magna Carta for Small andMedium Enterprises.

WIDER RANGE OF SERVICES

From 1975 to 1994, the chamber focused primarily on conducting symposia and advocatingon issues of interest to members. From 1994 to 1997, the chamber expanded its range ofactivities and services to include membership recruitment, special projects, training seminars,credit, marketing services through trade fairs, subcontracting between big companies andSMEs, and business name registration.

The range of services was rationalized with the separation of the Laguna SeCen. Thesecretariat handled matters related to the functioning of the chamber, including finance andadministrative affairs, advocacy, and membership maintenance and expansion. It alsohandled special projects. The Laguna SeCen absorbed all the business support anddevelopment services of the chamber.

LESSONS FROM THE EVOLUTION OF LCCI

The review of LCCI’s history clearly shows the roles that donor agencies, such as the ZDHand Swisscontact, played and continue to play in changing organizational perspectives andfocus. The ZDH’s belief in using the business chamber as an economic development catalystand the importance it placed on professional management were key values that guided itsassistance program to LCCI. Swisscontact’s combination of subsidies, revenue-basedincentives, and technical assistance also sought to increase the SeCen’s potential for viabilityand sustainability through demand-led services.

The movement of LCCI from informal secretariat to formal secretariat and eventually toindependent business service center highlights the importance of assigning professional staffto the management of service provision. It was the appointment of a full-time executivedirector that provided the needed push to move LCCI forward in terms of its services tomembers and MSEs. The eventual separation of the Laguna SeCen as a separate profit centerprovided the appropriate push toward being more demand led.

LCCI started introducing new services when key staff were exposed to other institutionsthrough site visits. This opportunity was a strong stimulus to introduce changes andimprovements in LCCI and the Laguna SeCen.

The changes in LCCI were seldom limited to one area of the organization. For example, achange in membership focus was accompanied by changes in membership policy, structure,and services. These reorganizations helped LCCI remain internally and externally consistent.

The changes that LCCI went through are summarized in Table B-2.

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Table B-2: Evolution of the Laguna Chamber of Commerce and Industry

1975-1994 1994-1997 1997-present

Structure§ Attached to

chamberpresident

§ Voluntary or ad-hoc support staff

§ Set up distinctsecretariat with full-timeofficer in charge, withown office

§ Added board position ofVice President forSectoral Affairs torepresent sectoralmembers

§ Set up LagunaBusiness Institute astraining arm

§ Separated secretariatand service functionsinto two entities: LCCIsecretariat and LagunaSeCen

§ SeCen treated as profitcenter

Membership Base§ Mostly larger

companies§ Introduced sectoral

membership asmembership categoryfor associations

§ More attention given toSMEs through loweredmembership fees fordirect members andsectoral members

§ Priority clients definedas cottage, small, andmedium-sizedenterprises in Lagunaand nearby towns inBatangas (includingnon-members)

Services/Activities

§ Symposia andadvocacy onissues of interestto members (e.g.taxation,regulation)

Expanded range ofservices:

§ Membershipdevelopment andrecruitment

§ Advocacy

§ Training

§ Trade fairs

§ Other business supportservices

§ Phone service, fax,photocopying, typing,secretarial

Secretariat

§ Financial andadministrative affairs

§ Advocacy

§ Membershipmaintenance andexpansion

§ Special projects

Service Center

§ Training

§ Business supportservices

§ Financial services

§ Marketing assistance

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APPENDIX C

CALCULATION OF POTENTIAL INITIAL MARKET SIZE ANDREVENUE MAXIMIZING PRICE

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CALCULATION OF POTENTIAL INITIAL MARKET SIZE AND REVENUEMAXIMIZING PRICE

Information to calculate the potential initial market size and the revenue maximizing pricefor a product is gathered during the product concept test.

POTENTIAL INITIAL MARKET SIZE

To determine the potential initial market size, the researcher determines respondents’ interestin purchasing a service. The respondents listen to a description of the service. After thedescription, they are asked for their comments. Then they are asked if they are:

§ Definitely interested in buying the service;§ Probably interested in buying the service;§ Probably not interested in buying the service; or§ Definitely not interested in buying the service.

The proportion that respond that they are definitely interested in buying represents theproportion of MSEs that make up the potential initial market for the service. Multiplying theproportion of MSEs definitely interested in buying the service times the number of MSEs inthe population covered by the service yields the potential initial market size. In this case:

% definitely interested in buying Internet access: 8.5%x number of registered enterprises in Calamba: 3,300x % of registered enterprises in Calamba that are MSEs: 80%equals: 224 MSEs

REVENUE MAXIMIZING PRICE

The revenue maximizing price is calculated using a price sensitivity test. The key principle ofthis test is that people who want to buy a service will buy only if it costs up to a certainamount—the maximum they are willing to pay. If it costs more than this, they will dowithout the service.

To determine the maximum respondents are willing to pay, respondents who say they weredefinitely or probably interested in buying a service are shown a price scale: a piece of paperwith a range of prices for the service on it. For Web page development, the scale looked likethis:

P1,200 P1,350 P1,500 P1,650 P1,800 P1,950 P2,100 P2,250 P2,400 P2,550 P2,700 P2,850 P3,000 P3,150 P3,300

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Then respondents are asked, “At what price would you no longer be interested in buying theservice?” The answers yield a table, like Table C-1, which shows the percentage ofrespondents who are still willing to purchase the service at that price. For example, in thiscase, at P1,200, 42 percent are still interested in buying Web page development services. AtP1,800, only 26 percent are still interested in buying. At P2,850, the number who areinterested decreases even more to 13 percent.

Table C-1: Web Page Development Price Sensitivity Test

Price per Page(Pesos)

% Still Willing toBuy at Price

Revenue at Price(Pesos)

1,200 42% 5041,350 37% 499.501,500 26% 3901,650 26% 4291,800 26% 4681,950 26% 5072,100 21% 4412,250 16% 3602,400 16% 3842,550 13% 3322,700 13% 3512,850 13% 3713,000 11% 3303,150 11% 3473,300 0% 0

The revenue is calculated as the percent willing to purchase times the price of purchase. Thisis shown in the last column of the table. The “revenue maximizing price” is the price atwhich the service earns the most revenue. In this case, it is P1,950 per page for Web pagedevelopment.

Note that the price sensitivity test does not provide any information about the costs for theservice or whether a provider can cover the costs. It only measures the potential revenue fromprovision of the service at various prices. It is possible that the revenue maximizing price isnot enough for a provider to cover costs unless the provider is able to increase demandbeyond what it was when the test was done.

Documents

The Laguna Small - Microfinance Gateway · PDF fileThe Laguna Small and Medium ... Nonprofit Supplier of Information and Communications Services in the Philippines. ... (German Confederation