Eye on the Philippines: Opportunities, misconceptions and challenges

Darren Lee, Regional Director (Manila) of Enterprise Singapore, sheds some light on doing business in the Philippines.

1. What are some of the latest developments in the Philippines right now?

In Q1 2018, the Philippines reported a GDP growth of 6.8%. The latest growth rates show that the country has enjoyed 6 consecutive years of growth above 6%, bolstered by overseas remittances, tourism and business process outsourcing.

As the economy develops, infrastructure gaps remain a major bottleneck for the country's growth. Congested airports are hampering the growth of tourism whereas congested roads remain a drag for its export industries and standard of living. The current Duterte administration recognised that the country had underinvested in infrastructure and launched the 'Build! Build! Build!' programme, an aggressive campaign to accelerate infrastructure development in the country.

With the promise to usher the Philippines into a 'golden age of infrastructure.' the administration targeted to spend approximately nine trillion pesos (S$234 billion) by the end of Duterte's term in 2022. Plans are underway to complete more than half of the 75 planned infrastructure projects by 2022. These projects span across railways, toll roads, airports, utilities, power, water treatment and telecommunications.

Congestion in Metro Manila is another major area that the Philippines government is looking at. To alleviate the burden on Manila, the government plans to develop New Clark City, a new 9,450-hectare metropolis located 100 km north of Manila. New Clark City will be home to the National Government Administrative Centre, where government agencies will be located and will provide space for businesses and industries to grow.

Fintech is another sector of major development in the Philippines. In 2017, Bangko Sentral ng Pilipinas (BSP) and the Monetary Authority of Singapore signed a bilateral agreement on fintech collaboration. The BSP sees fintech as a means to drive financial inclusion and lower transaction costs for the large unbanked population.

Enterprise Singapore led a business delegation comprising 12 SMEs offering fintech solutions to the Philippines in July 2018. The visit was well received by local Filipino banks, signalling their willingness and commitment to adopt new technologies. Several of the companies are now in discussions with the banks to adopt latest innovations.

2. Could you share what are some of the biggest opportunities? Why should Singapore businesses consider entering?

The Philippines has strong fundamentals that make it an investment destination.

First, let's look at demographics. The Philippines currently has a population of 105 million, which increases by 2 million every year. It has a young workforce with a median age of 23.5 years. These point to a huge and young consumer base that create opportunities for Singapore brands and products. In fact, many Singapore start-ups and tech-related companies have expanded into this market to target this huge consumer base. Examples include Carousell, Grab, Honestbee, Shopee, Shopback and SGAG.

There is also a relatively large number of the population working overseas. Today, remittances from the country's overseas workforce of 10 million accounts for 10% of its GDP. This is expected to sustain a growing consumer market in the Philippines. A large percentage of the population is also unbanked, thus providing opportunities for fintech to capture growth from an unserved market.

Second, language. The Philippines is working to improve its ease of doing business but with English as the main language of communications, it is relatively easier for Singapore companies to enter the market.

Third, geographies. The Philippines is an archipelago comprising more than 7,000 islands. There are many small-scale infrastructure projects valued at between S$5 million and S$70 million, which SMEs can capture. There is a growing demand for solutions in decentralised infrastructure given their improved efficiency and ability to serve previously unserved areas which can thus gain access to basic utilities. The government's 'Build! Build! Build!' programme will catalyse such collaboration and create opportunities for our companies.

To sum it up, the abundant manpower resources in the market will continue to drive growth across manufacturing, services, consumerism and infrastructure needs.

3. What are some misconceptions that businesses have about this market?

In Singapore, companies often cite the lack of labour as a big constraint on growth. When companies consider expansion into the Philippines, they often assume the same and propose solutions that leverage technology to address labour constraints. However, that is not the case in the Philippines, where labour is abundant. Thus, it is key for Singapore companies to fully utilise this resource smartly and identify the most cost-effective methods to deliver quality products and services.

4. What are some of the biggest challenges that businesses would face and how can they overcome these challenges?

For all companies, understanding of local business practices and local employment workforce is critical. A good local partner is important to engage local stakeholders and they provide a resource base in terms of manpower and experience for Singapore companies to tap on. While local partners are critical, information on potential partners via desktop research can be limited. Singapore companies should invest substantial efforts in engaging various in-market contacts to identify partners and do due diligence of the local partners.

For certain projects, strong support and approvals from government officials are required. Being new to the market, it might be challenging to understand the approval process and documentation requirements.

Our overseas centre in Manila work closely with Singapore businesses to close these gaps. We maintain close relations with chambers of commerce, lawyers and banks to shortlist and surface potential partners for Singapore companies. Enterprise Singapore also engages local government units and local business community to understand their challenges and facilitate collaborations and partnerships.

5. What's your top advice for SMEs thinking of entering this market?

The Philippines is a sizable market but it is an archipelago of over 7,000 islands. Singapore companies should see tier 1 cities such as Manila and Cebu as stepping stones to expand across the country. Successful expansion will be dependent on whether the companies are able to develop a pool of quality manpower and this is something that companies should work towards from day 1.

In order to do business in the Philippines, it is a must to demonstrate commitment to the market. Frequent face time and local presence are required to build rapport and mutual trust with potential business partners. Lechon (a local pork dish) and karaoke sessions are a great way to start. Do not be surprised if you are introduced to their entire family.

While English is commonly spoken and business objectives are easily communicated, it will be wise for businesses to work out specific actionable items and track these from time to time. This will ensure that business goals are not lost in translation or misunderstood by various parties.

For more market insights on ASEAN and information on how Enterprise Singapore can work with your business to venture to the region, please visit www.enterprisesg.gov.sg/ASEAN