One of my primary responsibilities as a consultant is advising my clients on expanding their international operations to profitable markets. From small businesses to multinational corporations, the term "globalization" is often thrown around the boardroom and business executives know they need to expand into other, sometimes risky, markets in order to stay ahead of the competition and maximize profitability. The problem is, however, that many executives do not know which markets to enter or how to enter effectively. I had the opportunity to attend a seminar, "Doing Business in the Philippines," sponsored by the Urban Enterprise Center of the Greater Seattle Chamber of Commerce and the Philippine Department of Trade and Investments. There are a few highlights from the November 9, 2009 event that are worth sharing if you are considering doing business in the Philippines.
The purpose of the forum is, according to the event's program, to "introduce small and medium size businesses to the opportunities and considerations (government regulations, processes, cultural influences and situational nuances) in doing business with Philippine enterprises for buying, selling or joint venturing purposes." Ms. Josephine Romero, Trade Commissioner of the Philippine Department of Trade and Investments – Western USA Region made a presentation outlining the business opportunities that exist in this Southeast Asia country of 89 million people.
Ms. Romero noted several attributes of choosing the Philippines as a business destination such as the country's strategic location being three to four hours of flight time from key Asian cities, establishment of a regional hub for logistics that include FedEx, UPS, and Lufthansa Technik, and good access to the 500 million people living in the Association of Southeast Asian Nations (ASEAN). In describing the quality human resources, the Trade Commissioner said the Philippines offers an educated labor force of 32 million whom possess a fast learning curve and very competitive labor rates. Furthermore, 95 percent of Filipinos are literate with English being taught in all schools, making the Philippines the world’s third largest English-speaking.
Regarding the business environment, Ms. Romero explained that the Philippines government deregulated the telecommunications and other key industries and services, the country has strong capital markets and banking system, market-oriented foreign exchange services, and proactive assistance for investors. Other key points made during the presentation include the how the Foreign Investments Act (FIA) of 1991, the law that governs foreign investments in the Philippines, opened domestic market to 100% foreign investment except those in the Foreign Investment Negative List (FINL), redefined "export enterprise" to mean at least 60 percent for export, and 100 percent foreign ownership of business activities are allowed outside the FINL, but without incentives. It was suggested, however, that foreign businesses work with a local partner in navigating the challenges that exist.
Profitable business sectors in the Philippines include customer service, manufacturing (home furnishings, textiles, construction materials, and motor vehicle parts and components), food importation, organic and natural products, information technology and IT-enabled services, renewable energy, and tourism. While the corporate income tax is 32 percent, companies operating in the Special Economic Zones (ecozones) are subject to only 5 percent overall tax rates. Multinationals looking for regional headquarters, said Ms. Romero, are entitled to incentives such as tax exemptions and tax and duty-free importation of specific equipment and materials.
Mr. Sanjay Kumar, Chief Executive Officer of Kirkland, Washington-based V-Customer Corporate Services, spoke about his successful experiences in establishing business operations in the Philippines. He talked about the ease of registering a business entity, working with a qualified labor force, low cost of doing business, and the liberalized and business-friendly environment.
When asked about the challenges of doing business in the Philippines, Ms. Romero responded that e-commerce and wide use of the Internet are not prevalent throughout the country. While Filipinos have access to the Internet, they do not use the technology for commercial purposes. She did explain, however, that the national government is focused on building an IT economy and making the Philippines the e-services hub of Asia. Regarding intellectual property rights, Ms. Romero said piracy is a problem in the Philippines, which is a shared problem throughout ASEAN. She further said the national government is working on a legal framework to enact and enforce IP laws.
I invite readers of this blog to post comments detailing their successes (or failures) of doing business in the Philippines.
Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of Solutions for a Sustainable World.