TO celebrate the International Micro, Small and Medium Enterprises (MSME) Day this year, the Department of Trade and Industry (DTI) invites everyone to the “Sulong Negosyante! An MSME Fiesta”.

The MSME Fiesta will take place June 27-29, from 10:30 a.m. to 6 p.m. at the Newport Mall in Pasay City.

During the three-day event, MSMEs will have the opportunity to be mentored by the country’s top thought leaders, create meaningful connections with other business owners and win Negosyo packages from event partners.

Interested participants can register for free at bit.ly/sulongnegosyante.

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The Philippines marks MSME Day in support of the United Nations (UN) General Assembly resolution recognizing the crucial role MSMEs play in achieving the 2030 Agenda for Sustainable Development, particularly in promoting innovation, creativity and decent work.

New Requirements for MSME Franchise Holders in PH

Meanwhile, the Philippines issued Executive Order (EO) 169 to create competitive conditions for franchisees of micro, small, and medium enterprises (MSMEs) in the country. EO 169 sets out the terms and conditions of franchise agreements with MSME franchisees and requires franchise holders to register with the DTI – if they have a franchise agreement with an MSME franchisee. The DTI will monitor their compliance with the terms and conditions set out in the franchise agreement and verify the provision of remedies if any party breaches the agreement.

In May 2022, President Duterte signed and issued Executive Order (EO) 169 which aims to strengthen the Philippines’ franchise industry and protect micro, small, and medium-sized enterprises (MSMEs) by promoting an equitable and enabling environment for businesses.

Under EO 169, MSME franchise holders are now required to have franchise agreements registered with the DTI, and all future agreements must comply with the terms and conditions required set out in EO 169.

In addition, the DTI will create an MSME Register of Franchise Agreements with the role of tracking the terms and conditions of franchise agreements and remedies in the event of breach of the agreement by any party.

MSMEs in the Philippines are defined as enterprises that employ between 10 and 200 workers and whose asset size (excluding land) is between 3 and 10 million pula.

Who should register for the DTI?

Franchisors are responsible for registering their franchise agreements with the DTI, provided the franchisors are members of registered franchise associations. Additionally, franchisors must commit that all future agreements with MSME franchisees incorporate the terms and conditions of EO 169.

The minimum terms and conditions of franchise agreements with franchised MSMEs are as follows:

The name and description of the products and services under the franchise;

Details of franchisor responsibilities;

Detailed responsibilities of the MSME franchisee;

Details of specific rights granted to the MSME franchisee, such as intellectual property rights;

Details of any pre-signing or recurring fees, such as franchise fees imposed on the MSME franchisee;

Duration of the franchise contract and terms of renewal;

Provision of a ‘cooling-off’ period where the MSME has the option to terminate the agreement;

Details of dispute resolution mechanism;

Non-discrimination provisions;

The mechanism in the event of breach by either party of the terms and conditions of the franchise agreement; and

Effects and Reasons for Pre-Termination, Termination or Expiration of the Franchise Agreement.

The DTI has been tasked with providing incentives and other benefits to franchisors that include the terms and conditions mentioned in their franchise agreements. Additionally, although the inclusion of these terms and conditions is not mandatory for non-MSME franchisees, franchisors may use them as best practice clauses for their own franchise agreements.

Franchisors who are not members of any registered franchise association must register all of their franchise agreements with MSME franchisees.

Creation of an MSME register of franchise agreements

The DTI will create an MSME register of franchise agreements. Only franchise contracts between a franchisor and a franchised MSME can be entered in the register.

Importance of MSMEs in the Philippines

MSMEs are the backbone of economies in Asia, and even more so in the Philippines where they represent 99% of businesses in the country. They contribute 25% (https://www.dti.gov.ph/resources/msme-statistics/) of the Philippines’ total exports, employ about two-thirds of the workforce, and contribute 40% of GDP from the country. As such, strengthening and improving the business environment for Filipino MSMEs will be crucial not only for post-pandemic growth, but also for inclusive growth.

However, MSMEs add relatively little value to the economy of the Philippines – lack of access to finance being their most serious obstacle to growth. Although the government makes funds available, many MSMEs have limited collateral and credit history to qualify for them and therefore rely on informal banking solutions for financial support.

A huge advantage for franchisors of working with a franchised MSME in the Philippines is that local MSMEs have economic activities in all parts of the country, not just in major cities.

Moreover, with the help of technology, MSMEs in the Philippines are now able to serve customers around the world. Currently, this potential is largely untapped, especially to bring MSMEs to take advantage of the country’s preferential trade agreements.

Among the free trade agreements to which the Philippines is a party is the Regional Comprehensive Economic Partnership (RCEP). Local MSME exporters can better comply with RCEP rules of origin requirements and begin exporting their products and services to other member markets under essentially duty-free treatment.