Keys to successful business in the Philippines
The recent growth story of the Philippines has given foreign companies several reasons to investigate the business opportunities the country has to offer. Boasting an average annual GDP growth of over 6 percent for the last decade, and a growing English-speaking and western-minded population of 108 million, the Philippines has all the ingredients in place to attract startups, SMEs, and multinationals.
While the first impression of the market opportunities is very positive, it is crucial to reflect on the keys to success in doing business in the Philippines, especially as a new entrant to the market. In the following, we will discuss these keys to successful business in the Philippines in more detail.
Identify and verify your business opportunity
When assessing the market opportunity, it is noteworthy that the domestic market provides attractive opportunities in both B2C and B2B business: retail, real estate, and construction sectors are booming, and the growing middle class is driving an economy of which two-thirds come from private consumption.
The Philippines is also the global no.1 destination for voice-based customer service center operations, and no.2 destination for non-voice, such as IT, software development, and finance & accounting. Manufacturing is mainly focused on light industries such as electronics, but at the same time, Philippines is also a top 5 shipbuilding nation in the world. Identifying and verifying the right opportunities are important early steps in establishing a successful business in the Philippines.
Determine what kind of market presence is required
Selling to the domestic market typically means establishing a direct presence, partnering locally, or both. For direct presence, different legal entity options (subsidiary, branch, representative office) have to be carefully considered, while proper partner selection and implementing a functioning channel sales concept is one of the keys to a successful business in the Philippines when it comes to establishing a presence through local partner(s).
For service center operations, the selection is between setting up an in-house operation or partnering with a third-party service provider. Both options have their advantages, in-house operations are often preferred for larger scale set-ups, while smaller teams are more flexible to establish through external partners.
In manufacturing, it’s all about site selection: logistics, supply chain, talent availability, and cost. There are several industrial zones nationwide, and incentives are available especially for export-oriented activities. Two national agencies for investment promotion grant incentives for investors: Board of Investments (BOI) and Philippine Economic Zone Authority (PEZA), in addition to local investment promotions organizations in different parts of the country.
There are also Philippine-specific considerations – evaluation the location of incorporation should be done carefully, as different local government units vary a lot in efficiency and assistance to foreign investors. Metro Manila, for instance, consists of 16 different cities, with each having varying degrees of ease of doing business.
Be patient and commit to the market
When selling locally, commitment to the market is another key to success: one to three-year business development cycle is normal for establishing a sustainable market presence. Apart from purely business-related considerations, it should be kept in mind that there is also a lot of red-tape with annual renewals of permits and licenses, and a lack of efficiency and service-mindedness in the public sector.
A long-time Nordic executive explains: “If one wants to set up a local Philippine legal entity, one needs to be armed with patience, as it is neither fast nor straightforward. Once in operation, companies doing business in the Philippines need to pay special attention to compliance with the complex, extensive and ever-changing rules and regulations of particularly the Department of Labor and Employment, and the Bureau of Internal Revenue.”
Invest in people
Filipino people are often referred to as the greatest asset of the country. With a workforce of 45 million and an addition of ca. 1 million college graduates each year, there is an abundance of English-speaking, high-skilled workforce. However, industry surveys indicate that only one-third of new graduates are employable, which means that there is a heavy reliance on the private sector for talent development.
Establishing university partnerships are a common way to ensure the quality of graduates. For instance, a multinational IT company runs an R&D facility of more 1000+ software engineers in Metro Manila and has a close collaboration with a local university. In-house academies and training centers, as well as external training centers, are commonplace in maritime, engineering, and heavy industries such as energy, oil & gas, and mining.
Quoting one Nordic entrepreneur engaged in the retail sector:” An obstacle can be the different standards and levels of education and the rather old-fashioned approach to organizational hierarchy. There is often a need for additional training, but Filipinos, in general, are very interested and quick in adapting to new systems and procedures, and it really helps that the level of English is good. It may be difficult to implement a Nordic flat type of organization too quickly however.”
Build trust and partner with the right people
With western-like consumer behavior and everyone speaking English, it is easy to forget that the Philippines is indeed part of Asia. Another Nordic business-owner elaborates: “Even if the Philippines is the most Westernized country in Asia, there is quite a big cultural difference, which is important to understand. In the Philippines politics is not so much based on idealism and loyalty to a party program and long-term visions as we are used to from Europe, but rather on personal loyalties, and the clan-culture or classmate system is very important also in business. It is therefore important to establish a good network of well-established contacts and local partners.”
In a nutshell – Keys to successful business in the Philippines
- Identify and verify your business opportunity
- Determine what kind of market presence is required
- Be patient and commit to the market
- Invest in people
- Build trust and partner with the right people
These keys to success are shared with you based on the experience of carrying out 70+ advisory projects in the Philippines. For more information on how to make the most out of the business opportunities in this fast-growing market, have a look at our business development services.