• Philippines' small businesses top growth forecast for second consecutive year.
• Seven-in-10 found investment in technology improved profitability in 2022.
• Rising costs, particularly materials, were most detrimental to businesses.

Three quarters of Filipino small businesses grew in 2022, an increase of 10 percentage points from 2021. A robust economy contributed to 89 per cent predicting growth this year. This optimism is reflected in plans to hire more staff this year (58 per cent).

"Due to increasing domestic demand and a speedy recovery in the services sector, particularly in tourism, many Filipino small businesses expanded solidly. They continue to be one of the most dynamic in the Asia-Pacific region," said CPA Australia's Regional Manager for Emerging Markets Mr Nicklaus Wee.

A strong focus on maintaining customer relationships and using social media contributed to growth. Forty-four per cent nominated customer loyalty as a positive factor. Over 90 per cent used social media for business purposes, including promoting to potential customers (65 per cent) and selling products or services (59 per cent).

Filipino small businesses' ability to identify the right technologies to invest in and profit from further strengthened their competitiveness. Seven-in-10 said their investments last year had improved profitability, strongly surpassing the survey average of 55 per cent.

"The COVID pandemic has fundamentally changed consumer behaviour. The survey shows that Filipino small businesses are adopting a more customer-oriented approach, including increasing their interaction with potential customers. Using customer feedback allows them to swiftly identify the best options, including technological solutions to meet customers' needs" Wee explained.

Nevertheless, increasing costs and difficulties accessing external funds may hamper financial returns and development plans. Four-in-10 said increased costs were negatively affecting their businesses, the highest result in all surveyed markets. The cost of materials (42 per cent) ranked as the cost most felt by local businesses, followed by fuel (38 per cent) and utilities (36 per cent).

Despite over three-fifths requiring external funds last year, only 25 per cent said they found it easy to access finance. This was the lowest result of the surveyed markets. Seventy-eight per cent expect to seek finance this year, mainly for growth, but only 23 per cent foresee this process to be easy.

"Many Filipino micro, small and medium-sized enterprises (MSMEs) are suffering from soaring costs. To combat high inflation, the central bank increased interest rates, which made financing conditions more challenging for MSMEs.

"The Filipino Government has several loan programs to enhance financial inclusion, such as the Pondo sa Pagbabago at Pag-asenso (P3) and KAYA loans. The percentage of small businesses that borrowed from banks, non-financial institutions and investors last year significantly increased from 2021.

"While the Bangko Sentral ng Pilipinas (BSP) is forecasting that inflation will begin to ease this year, small businesses continue to face a challenging period. To help them manage through this economic transition, Filipino small businesses should consider seeking professional advice. Their trusted accountant may help them better understand financing conditions, improve cash flow and diversify financing sources.

"More than a third (34 per cent) monitored their energy and water use and 24 per cent spent time and resources on supply chain sustainability. Small businesses should increase their focus on reducing energy costs and optimising supply chains from sourcing to production. This will help reduce energy cost volatility as they strive for sustainable expansion."

Fifty-three per cent expect overseas sales to grow this year. "With the Regional Comprehensive Economic Partnership (RCEP) Agreement taking effect in June, it will bring more opportunities for small businesses to tap into overseas markets."

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References

1. ^{^} Media OutReach (www.media-outreach.com)