Philippine SME Participation in ASEAN and East Asia Regional Economic Integration.pdf

Philippine SME Participation in ASEAN and East Asia Regional Economic Integration.pdf

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Journal of Southeast Asian Economies Vol. 34, No. 1 (2017), pp. 39-76 ISSN 2339-5095 print / ISSN 2339-5206 electronic DOI: 10.1355/ae34-lc Philippine SM E Participation in ASEAN and East Asian Regional Econom ic Integration Rafaelita M. Aldaba This study aims to examine the extent and nature of Philippine SME participation in ASEAN economic integration. Based on a survey o f205 establishments, the results indicate that out of 205 firms, 41 per cent are FTA users, of which 48 (or 40 per cent) are SMEs while 33 (44 per cent) are large enterprises. The survey shows that although most firms are aware of the AEC (ASEAN Economic Community), they still have limited knowledge about the more specific impact of AEC on their business operations. About 62 per cent of SMEs are unaware of how the AEC would affect their business operations. Regarding the perceived effects of FTAs on SMEs, 53 per cent of the respondents indicated that they do not know, have no opinion or have no response. The major reason cited by firms for not using FTAs is they do not know how to use them. The regression analysis on the determinants of FTA use shows that the coefficients on firm size, age, exporting, foreign ownership, engaging in innovation, membership in industry association, and awareness of the AEC are all positive and significant. In terms of government support and assistance, the survey results indicate that only a small proportion of the respondent firms are being reached by existing government programmes. The results reaffirm the need for more substantial awareness programmes especially on how to use FTAs and how firms can take advantage of the opportunities arising from AEC integration and other FTAs. Keywords: Philippines, SMEs, regional economic integration, ASEAN Economic Community, foreign direct investment. 1. Introduction Regional production networks are at the heart of intra-regional trade and investment and are the key drivers of economic growth in ASEAN and East Asia. The ASEAN Economic Community (AEC) was established not only to create a single market but also to serve as a regional production base that will attract more foreign direct investment. This phenomenon is characterized by the exports of parts, components, capital equipment and other industrial inputs to be assembled into finished goods for export. Small and medium enterprises (SMEs) are expected to benefit from the opportunities arising from increasing globalization and regional economic integration through greater Rafaelita M. Aldaba is with the Department of Trade and Industry, Assistant Secretary Industry Development and Trade Policy, Industry and Investments Building, 385 Sen. Gil Puyat Avenue, 1200 Makati City, Philippines; email: [email protected] ©2017 ISEAS - Yusof Ishak Institute 39
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40 Journal of Southeast Asian Economies Vol. 34, No. 1 participation in global value chains (GVCs) and global and regional production networks.1 MNCs have established these production networks with domestic firms, particularly SMEs, serving as potential suppliers of outsourced parts
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