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HELPING YOUR BUSINESS GROW INTERNATIONALLY Philippines Business Guide 1 This guide was produced by the UK Trade & Investment Philippines Markets Unit in collaboration with the British Posts in the Philippines, international trade teams and the Philippines-Britain Business Council. Disclaimer Whereas every effort has been made to ensure that the information given in this publication is accurate, neither UK Trade & Investment nor its parent Departments (the Department for Business, Innovation and Skills, and the Foreign and Commonwealth Office) accept liability for any errors, omissions or misleading statements, and no warranty is given or responsibility accepted as to the standing of any individual, firm, company or other organisation mentioned. 2 Front cover image: Manila CONTENTS INTRODUCTION Why the Philippines? 4 About this Business Guide 10 RESEARCHING THE MARKET Where to begin 12 How we can help you 15 MARKET ENTRY Key business locations 17 Establishing a presence 18 Getting to the Philippines 22 GETTING STARTED Finding a customer or partner 24 Due diligence 25 Employing staff 27 Language 29 Marketing 30 BUSINESS ISSUES AND Intellectual property rights (IPR) 33 CONSIDERATIONS Procurement 34 Regulations and standards 35 Getting paid and financial issues 38 Insurance 39 Management control and quality assurance 40 Bureaucracy, bribery and corruption 41 BUSINESS CULTURE Meetings and presentations 43 Religion 44 Making conversation 44 Body language and gestures 45 Entertainment 45 Gifts 46 UK SUCCESS STORIES 47 CONTACTS 48 RESOURCES/USEFUL LINKS 49 3 INTRODUCTION WHY THE PHILIPPINES? The Philippines is an attractive proposition for UK businesses. One of t▯he largest markets in South-East Asia, with a population estimated at 94 million people, it▯ enjoys positive economic growth and an expanding middle class with a thirst for purchasi▯ng foreign consumer goods. Its birth rate of over 2 per cent is one of the highest ▯in the region; 60 per cent of the population are between 15 and 64 years of age, with s▯ome 50 per cent below 20. Made up of over 7,100 islands (only 2,000 of which are inhabi▯ted), the Philippines is the twelfth most populous country in the world. The Philippines, which boasts a literacy Offering a liberalised economy and a rate of 94.6 per cent – among the highest highly Westernised culture, the Philippine in the region – has a highly skilled and market is very receptive to UK products educated workforce. One of the world’s and services. The inclination of Filipinos largest English-speaking countries, it to Western influence is seen heavily produces around 400,000 graduates a in apparel, popular music and films. year, adding to an already significant There is also a niche market for high-end professional pool. branded merchandise. Often voted as one of the most liveable The Philippines’ strategic location also countries in Asia for expatriates, the makes it a potential gateway for investors Philippines has a well-developed network to the wider Asian region. It is less than of communications and transportation two hours’ flying time to Hong Kong and infrastructure that links the three largest within four hours of other major Asian island groups of Luzon, Visayas and cities, and lies astride major international Mindanao. Its specialised IT zones provide shipping lanes. ready-to-occupy offices and production facilities, computer security and building monitoring systems, as well as complete office services. 4 Economic growth The Philippines is an emerging economy, with an expanding consumer base. It showed resilience in the midst of the global financial crisis, growing modestly at 0.9 per cent in 2009 but by an impressive 7.3 per cent in 2010 – the highest in over 20 years. This was boosted by growth in the services sector, complemented by strong domestic investment, growth of business process outsourcing, hotels and restaurants, wholesale and retail trade, and import The Philippines’ main industries are electronic and export trade. Current government components, food and drink, clothing, projections for future annual economic footwear, tobacco, petroleum products, growth range between 5.9-6.9 per cent. metals/minerals and electrical machinery. Potential growth drivers are booming sectors Almost a quarter of the Philippines’ labour such as Business Process Outsourcing (BPO)/ force works abroad. As a consumption- call centre operations, which employ over driven economy, one of the main concerns 400,000 people in the country and are the during the global economic downturn third-largest in the world after India and was a slowdown in overseas remittances China; improving VAT collections; fiscal stemming from job insecurity in key reforms; infrastructure development; and destinations such as North America and privatisation of the power industry. Europe. However, remittances grew beyond expectations at 5 per cent and amounted The majority of businesses in the Philippines to US$17 billion by the end of 2009. are family-owned, or owned by a small Remittances, the main sources of which powerful group of individuals, either directly are the USA, Saudi Arabia, Canada, the UK, or through private corporations. Italy and the UAE, support the balance of payments, consumption and investment The national currency is the Philippine growth, particularly in the booming peso (PHP), traditionally one of the real-estate sector. strongest-performing currencies in South-East Asia (GBP 1 = PHP 71.18, January 2011). 5 INTRODUCTION WHY THE PHILIPPINES? (CONTINUED) Political situation Foreign companies are generally allowed The Philippines is a democratic republic to conduct their own business in the based on a presidential system of Philippines. There are some areas where government. The President and the Constitution limits foreign ownership, Vice-President are elected for a single including the exploration and development six-year term. Congress consists of a of natural resources, and ownership of House of Representatives and a Senate. private land, wherein foreign equity of up Members of the House of Representatives to 40 per cent is allowed. are elected for a three-year term, while senators are elected for a period of six years. The fact that the Philippines is one of the largest English-speaking countries in the world The Philippines held Presidential Elections increases the ease of doing business there. on 10 May 2010 and a new President, Benigno “Noynoy” Aquino III, took office The Asian Development Bank has had its two months later. He and his new ministerial headquarters in Manila, the Philippine team have promised to fight poverty and capital, since 1966. corruption and make the country a more attractive place in which to invest. Market access Market access issues still exist in the Business environment Philippines. The country was ranked 144th The Philippines welcomes foreign exports globally for “ease of doing business” by the and investment. A member of the World Bank in 2009, down from 141st in Association of South East Asian Nations 2008. These market access issues are being (ASEAN) and the World Trade Organization explored by Ministers and by senior officials, (WTO), general trading procedures and both at the domestic and EU level. Although standards apply. the country is not expected to be an early candidate for a Free Trade Agreement Government policy actively encourages with the EU, the EU and the Philippines foreign investment in practically all successfully negotiated a Partnership and sectors of the Philippine economy and Cooperation Agreement (PCA) in 2010. provides incentives to investment activities The UK’s main market access issues with that encourage national development. the Philippines are: Such incentives include reduced rates of corporate income tax. 6 • Food and drink: excise tax discriminates Sectors presenting business opportunities against imported distilled spirits and include: tobacco (the spirits issue has been raised Agriculture: livestock genetics and with the WTO). biotechnology; animal health technology; • Pharmaceuticals and IPR: the Philippines’ agri-waste management and waste-to- desiretoimportcheapermedicinesanddrugs energy conversion; aquaculture; quality is causing foreign suppliers some discomfort. assurance and traceability systems. • Financial services: there are restrictions on opening bank branches in key areas Aid-funded business: regional Asian in the Philippines, as well as on foreign Development Bank projects in sectors ownership of land, banking subsidiaries such as agriculture and natural resources; and total banking assets. education; energy; construction; environment and climate change; finance; Note:the ban on UK beef was formally lifted health; governance; transport; water and in July 2010. However, UK exporters still need other municipal infrastructure. to apply for accreditation, and in-country inspections have to be carried out before beef Construction: building products and exports are allowed into the Philippines. services; architecture and engineering; sustainable design and construction. Commercial opportunities Despite these market access issues, UK Education: accreditation; educational firms should not be put off from doing software/hardware; BPO-related projects. business in the Philippines. Energy: privatisation of government The country is a consumer-oriented society power assets; renewable energy projects; with a propensity to buy imported goods. energy efficiency; carbon finance; clean Demand is also boosted by tourism, with development mechanism. an increasing number of visitors arriving every year. There are privatisations and Environment: landfill investment and reforms in the electricity, water and waste technologies; landfill gas management; management sectors; infrastructure projects engineering services; leachate treatment are increasingly being opened up to private systems; compacting and recycling finance; and construction is booming in equipment; new/used vehicles for garbage collection and hauling; hazardous waste the residential and commercial sectors. and WEEE handling solutions. 7 INTRODUCTION WHY THE PHILIPPINES? (CONTINUED) TOP 10 UK EXPORTS TO PHILIPPINES (2009) Pharmaceuticals TOP 10 UK EXPORTS TO PHILIPPINES (2009) Electrical machinery Power-generating Pharmaceuticals 45% machinery Electrical machinery 45% Essential oilsPower-generating machinery 23% General industrialEssential oils 13% machinery General industrial machinery 13% Paper Paper 10% Iron and steelIron and steel 9% Chemical materials 9% Chemical materials Miscellaneous manufactured articles 8% Miscellaneous Scientific apparatus 7% manufactured articles Scientific apparatus £millions 10 20 30 40 50 Healthcare: health and wellness facilities; establishment of a PPP Centre to oversee medical equipment and supplies. the rollout of projects, as well as a major conference, Infrastructure Philippines, ICT: contact centres; back-office to launch ten infrastructure projects, solutions; animation and gaming; software all of which are open to foreign investors. development; consultancy services. Retail: fashion; accessories; wellness Mining: finance; insurance consultancy; products; food concepts. and equipment, primarily for copper, gold, coal and nickel projects. Tourism: hotel and leisure facilities and related services; medical tourism. Public-private partnerships (PPP): major sectors for PPP projects as identified by the Philippine Government are agriculture, infrastructure and tourism. 2010 saw the 8 HUMAN RIGHTS The Philippines is a functioning democracy with a flourishing civil so▯ciety and a lively independent media. It is one of only a few countries in South-Eas▯t Asia to have abolished the death penalty and has acceded to all the core UN human rig▯hts treaties. It performs particularly strongly in areas such as gender equality and m▯igrants’ rights. However, Philippine implementation of legislation designed to protect human rig▯hts is often poor. International concern has been expressed about the number of unexplained killings and disappearances in the Philippines, and the Gove▯rnment’s apparent inability to address this problem. Killings with a suspected po▯litical motivation have decreased markedly over recent years, but there is still internatio▯nal disquiet about the lack of prosecutions and continued unexplained killings of sus▯pected criminals. Other human rights concerns include the use of torture, poor ▯detention conditions, the recruitment of child soldiers by insurgent groups, child▯ labour, violence against women and sexual abuse of children, including by travelling sex ▯offenders. Bilateral relationship The UK is among the long-term leading including Merlin Information Systems, foreign investors in the Philippines. Invent Asia, Wirebelt Company Ltd and Cumulatively, the UK is the largest investor Clayton Equipment. in the Philippines for the past decade. Combined net foreign direct and net UK brands such as Debenhams, M&S, portfolio investments between 1999-2009 Clarks shoes, Topshop, Dorothy Perkins, amounted to US$9.3 billion. Burberry, Speedo, Jaguar/Land Rover and Mini are popular among the Philippine There is also a strong trading relationship. middle class. UK exports of goods to the Philippines for January-October 2010 increased by 14 There is a small British community in the per cent compared to the same period the Philippines of around 15,000 people. previous year, while UK imports from the About 70,000 British nationals visit country increased by 29 per cent. the Philippines annually. The Filipino community in the UK is currently estimated There are currently about 200 UK companies at over 250,000 and is growing rapidly. active in the Philippines. Major names Many Filipinos in the UK work in the include Shell, HSBC, Standard Chartered, health and care-giving sectors, but they are Pru Life, GlaxoSmithKline, AstraZeneca, also employed in sectors such as finance, Anglo American, Diageo, Unilever and law and technology. Filipino students G4S. A number of UK SMEs have also increasingly see the UK as an alternative to found their place in the Philippine market, the USA for higher and further education. 9 INTRODUCTION ABOUT THIS BUSINESS GUIDE Much of the information presented in About UK Trade & Investment this booklet is contributed by experts UK Trade & Investment (UKTI) is the at UK Trade & Investment, British government department that can help Diplomatic Posts and the British you achieve your international business Chambers of Commerce. potential. We combine the national resources of the Department for Business, The Philippines Business Guide, Innovation and Skills (BIS) and the Foreign which can also be downloaded from and Commonwealth Office’s (FCO) global www.ukti.gov.uk/export/philippines, network of Trade Development Staff, to is intended to provide general business help you successfully win business overseas. advice and should not be used as a substitute for market research, due We treat every business as an individual diligence or legal and professional services.– that’s why we provide a tailored service with specialist support covering a wide range of industries. Our capacity-building services can make a real difference to your business at a very reasonable price. To use our services your firm may need to meet certain eligibility criteria. Your International Trade Adviser (or equivalent person in Scotland, Wales and Northern Ireland) will be able to explain in more depth what these criteria are and advise you on costs. For more information visitwww.ukti.gov.uk 10 11 RESEARCHING THE MARKET WHERE TO BEGIN Desk research Doing business with the General introductory business information Philippines may seem rather about the Philippines is increasingly available and companies can obtain a daunting for those new to reasonable amount of preliminary insights the market, but taking a through desk research. strategic approach is the Economic research and sector analysis can key to making the process often be obtained from a large number of leading consultancies, research agencies and manageable. public-sector trade promotion organisations. Furthermore, the increasing use of e-commerce Companies should conduct and B2B websites in the Philippines has made reliable research before possible the identification of, and access to, potential partners across the globe. venturing into business in the Philippines. Good research A good place to start is the UKTI website, www.ukti.gov.uk, which provides detailed saves costs and improves country and sector information. Registration efficiency and impact right is free and offers additional benefits such as access to business opportunity alerts and from the start of a project. information updates. Consultation and bespoke research It is recommended that initial findings from desk research on the Philippines are verified and further investigation carried out. Often this requires mapping out a bespoke research brief with the help of specialists, and exploring what additional information you might need to make an effective entry into the market and how you can make the contacts vital to success. 12 UKTI offers a range of such services to • Identification of local contacts UK businesses interested in exploring the - Agents Philippine market. - Distributors - Suppliers Speaking to an expert - Potential partners UKTI provides support for UK companies through a network of international trade • In-market activities teams based in the English regions. - Meeting arrangements UKTI services are also available to firms - Event organisation, such as workshops, in Scotland, Wales and Northern Ireland. seminars, promotional activities and product launches. To arrange a consultation with your local International Trade Adviser, call For more information about how OMIS +44 (0)20 7215 8000 or use the database might be used to assist your company’s at www.ukti.gov.uk. strategy for the Philippines, please contact your International Trade Adviser. Overseas Market Introduction Service The Overseas Market Introduction Service Events and seminars (OMIS) is a UKTI service available to UKTI organises business events, seminars companies interested in researching the and workshops in the UK and the Philippine market. It can assist you by Philippines, covering a wide range of undertaking tailored research using UKTI’s business interests and issues. Not only extensive network of dedicated researchers do these events inform companies of across the Philippines. commercial opportunities and the latest information about the Philippine market, This can be used in a wide variety of ways they also provide a valuable platform for to help your business with its particular networking and sharing experiences with needs when entering the Philippine market. like-minded peers, not to mention regular They include: access to visiting Philippine delegations. • Market research and analysis Sign up to a forthcoming event by visiting - Sector reports www.ukti.gov.uk. - Market initiatives - Regulatory environment - Market opportunities 13 Key questions Market visits and trade missions Visiting the Philippines is an invaluable We have picked out a few questions often raised by companies and advisers. part of the process of market entry. You Ask them to yourself and see if you know will experience the marketplace first-hand, the answers before you start venturing and make the contacts necessary to do into the Philippines. business. This is essential, but will be much more effective with careful planning. • What are the unique selling points to your business proposition? Will UKTI organises regular trade missions to there be a market for your products the Philippines, where you can benefit from and services? group activities in addition to your own • Are there any legal barriers to your programme. business model? • Where in the Philippines would you UKTI’s OMIS service can be used to start? support visits, providing bespoke meeting • Do you have sufficient resources arrangements with appropriate potential (management time, project finance partners, agents and distributors or with relevant government officials. and expenses) to fund your Philippine venture? • Who will be leading the project within your company? • Do you need to work with a partner in the Philippines to succeed? Could you communicate with them effectively? • Have you evaluated business risks (such as protecting your intellectual property) and conducted research and due diligence? • Do you know how to secure payment and get the right quality products? Rarely will one have answers to all the questions above, and this “knowledge gap” forms the basis of further research and investigation. 14 RESEARCHING THE MARKET HOW WE CAN HELP YOU Trade development services Developing your trade potential UKTI’s services assist companies with provided and delivered by tailored training, planning and support to help them prepare to succeed overseas. UKTI can help you develop Getting started in international trade your ambitions in the can be tough – there’s a lot to learn and Philippines and in other often a lot at stake. That’s why it helps to have top-quality, cost-effective advice markets across the globe. and support. UKTI can provide: • n export health check to assess your company’s readiness for exporting, and help develop a plan of action, • training in the requirements for trading overseas, • access to an experienced local International Trade Adviser, • pecialist help with tackling cultural and language issues when communicating with overseas customers and partners, • advice on how to go about market research and the possibility of a grant towards approved market-research projects, • ngoing support to help your business continue to develop overseas trade, and also look at dealing with more sophisticated activities or markets, and • dvice on a range of international trade help available from UKTI and others. 15 RESEARCHING THE MARKET HOW WE CAN HELP YOU (CONTINUED) Accessing overseas markets UKTI’s business customers tell us that our Once the initial homework has been done, services have helped them to: UKTI assists new and experienced exporters • understand how to do business overseas, with information, help and advice on • identify opportunities, entering overseas markets, including the • reach customers/business partners not Philippines. To be a successful exporter you otherwise accessible, need to travel to your target markets and • raise their profile and credibility overseas, build lasting commercial relationships with • overcome barriers to entry or expansion, your clients and partners. This is not always • gain access to information not otherwise easy, but UKTI can help you with practical available, assistance before you go and ongoing help • understand the competition, while you’re there. • access powerful research to inform management decisions, and Our services include: • have the confidence to explore or expand • information, contacts, advice, mentoring in overseas markets. and support from UKTI staff at home and overseas in our network of embassies, consulates and other offices in over 100 markets, • upport to participate in trade fairs overseas, • opportunities to participate in sector-based trade missions and seminars, • ccess to major buyers, governments and supply chains in overseas markets, • dvice on forming international joint ventures and partnerships, • xploratory visits to new markets, and • alerts to the latest and best business opportunities. 16 MARKET ENTRY KEY BUSINESS LOCATIONS An archipelago comprising over 7,100 development into agricultural, industrial islands, the Philippines is categorised and commercial centres. They offer broadly into three main geographical various fiscal and non-fiscal incentives to divisions: Luzon, Visayas and Mindanao. companies located there, depending on the nature of their activities. Goods that are Manila is the capital of the Philippines imported into these areas are not subject and as such is the main base for business. to duty or tax while they remain inside the Within Metro Manila (the metropolitan zones, but are if they are withdrawn for use area of the city) the primary business hubs in the domestic market. Exports from these are Makati City, the main financial and zones bound for overseas markets are not business district; Ortigas Center in Pasig subject to local taxation. City; and the emerging Fort Bonifacio in Taguig City. The Subic Special Economic and Freeport Zone is a prominent gateway, with an There are also several Special Economic international seaport which can anchor Zones (“ecozones”), including Subic and 600 ships. There are also several other Clark, two former US military facilities ports in the Philippines, including those converted to civilian use. Such ecozones in Manila, Batangas (Southern Luzon), are located across the Philippines and are Cebu (Central Philippines) and Cagayan areas earmarked by the Government for de Oro (Southern Philippines). 17 MARKET ENTRY ESTABLISHING A PRESENCE UK companies can approach the Philippine Given these considerations, companies need to market in several ways, including: select agents and distributors carefully. Some of the frequently asked questions are in the • Exporting direct following checklist. You should also conduct • Appointing an agent or distributor due diligence to verify this information. • Partnering with a franchisee • Forming a joint venture Background • Setting up a local office • ompany size, history and ownership (private or state owned) Agents and distributors • Quality and quantity of the sales force In most cases, doing business in the • Customer feedback and trade/bank Philippines requires local representation in references the form of an agent or distributor. Distribution channels An agent is a company’s direct representative • Regional coverage – eg whether the in a market and is paid commission, while geographic sales area covers strategic a distributor sells products on to customers markets in the Luzon, Visayas and after buying them from the manufacturer Mindanao regions. – their income comes from the profits they • Types of outlets covered and frequency make on the difference. of calling • ransportation and warehousing facilities Market entry through working with an agent or distributor can have several Are they right for you? advantages, such as reducing time • Does the agent/distributor have a genuine and costs, as well as gaining the local interest in representing your product? knowledge and network of the agent. • Can they benefit from actively promoting your interests (is it a win-win)? However, there are some drawbacks to this • Do they have sufficient financial strength approach. Employing a third party results to maintain appropriate stock, provide in an additional cost to your products effective after-sales service, or offer and you may also lose some control and competitive payment terms? visibility over sales/marketing. It also has • Do they represent any competing implications for intellectual property rights companies/products? protection, increasing the risk of your • Can you communicate effectively with product being copied or counterfeited. your counterpart? 18 The Philippines is a market where family Establishing a permanent presence structures are common in the business Although it is possible to be represented environment and where personal relationships through agents or distributors, some are important. Once a working relationship foreign companies progress to the with an agent/distributor has been established, establishment of a permanent presence they need to be managed actively. This in the Philippines, as their experience and may be achieved by the following: confidence grow. Having a permanent in-market presence can provide several • Visiting as regularly as is practicable at possible benefits, including: a senior management level. This shows interest in, and commitment to, the • emonstrates commitment. agent and the market. It will also provide • Cuts out the “middleman”, you with an opportunity to learn about providing direct access to the end conditions in the market and see how customer/supplier. your products are faring. • Gives direct control over corporate • Working closely with the agent to show strategy and activities. them how they can profit from your • Enables trading in local currency products. and eases the conduct of business • Helping to prepare marketing and sales transactions. plans for the agent. • Providing regular training for the sales There are a number of structures in the staff and after-sales training for the Philippines that allow foreign companies to technical staff in the UK. conduct business activities. These include • Linking performance to incentives and representative offices, joint ventures and agreeing milestone targets. wholly foreign-owned enterprises. Each of these structures has unique advantages, There is additional guidance on working restrictions and drawbacks, and it is with Philippine partners in later sections of essential to choose the option best suited this Philippines Business Guide. to your business aims. 19 MARKET ENTRY ESTABLISHING A PRESENCE (CONTINUED) Companies that desire a permanent presence Representative offices in the Philippines have to set up operations Representative offices are often the first as an appropriate legal entity, depending step taken by foreign companies when on the intended business scope, and be establishing a permanent presence in the compliant with Philippine legal and tax Philippines. They provide a vehicle in which requirements. It is usually more difficult to the foreign investor can engage in limited alter a business structure once a legal entity non-revenue-earning activities. These has been incorporated or established, so activities are restricted to: it is vitally important to seek professional advice on your investment structure during • searching for local sources of goods or the early stages of planning. You must fully services for its head office, understand your intended business activities • inspecting and controlling the quality in the Philippines (for the short and long and quantity of goods procured by its term), whether they are practicable, any head office, legal and sector barriers to entry, and in turn • providing advice in various fields relating what the suitable vehicle is for you. to products directly sold by its head office to local distributors or consumers, UKTI can offer dedicated one-to-one • disseminating information about the consulting and incorporation services to assist new products and services of its head UK companies establishing various kinds office, and of permanent presence in the Philippines. • reporting to its head office on local Please contact us for more details. business developments and activities. Joint ventures A joint venture (JV) is an organisation jointly owned by one or several Philippine and foreign partners. A JV can be formed by way of equity contribution, where ownership, risk and profit are shared based on each party’s monetary contribution. Alternatively, a JV can be incorporated, with liabilities and profit distribution being decided by contractual agreement. 20 JVs may be beneficial in a number of ways. Incorporating in the Philippines A good local partner may contribute market To set up in the Philippines, foreign knowledge and strong marketing and investors must register their business with distribution channels, and they may help the Security and Exchange Commission reduce the costs and risk of market entry. (SEC). Generally, the requirements include paid-in capital and a certain number of The challenge of establishing and running shareholders or board members, depending a successful JV is finding and nurturing the on the type of entity being established. right partnership. Partners have to overcome issues such as mismatched expectations A business must be registered with the and differences in business culture and Bureau of Internal Revenue (BIR) and obtain practices. The ability to maintain effective a Taxpayer’s Identification Number (TIN). communication, and control where It must also be registered with the Local necessary, is also crucial. It is essential Government Unit (LGU) responsible for the that you carry out corporate and financial area where the business will be set up. This due diligence before you sign up to any entails securing a Mayor’s permit, business partnership in the Philippines. Companies licence and a barangay clearance certificate. should also plan an exit strategy. As with a marriage, it is better to have a prenuptial Navigating government agreement than a messy divorce. One of the challenges of operating and setting up a business in the Philippines Wholly foreign-owned enterprises is navigating the government network. A wholly foreign-owned enterprise There are many layers of government (WFOE) is a company incorporated in the agencies and procedures, which could Philippines that is 100 per cent owned by make identifying the right contacts a foreign organisation(s). more difficult. WFOEs are often a popular option for The UKTI team in Manila is knowledgeable foreign companies, as they give them about and has developed networks with complete control over their business entity, various public agencies in the Philippines as well as allowing them to enjoy the and is in a position to support UK full profit from its operation. Generally, companies in dealing with the Government. WFOEs also give greater protection to There are also credible business consultancy the investor’s intellectual property rights, companies and other industry bodies which compared with a JV. can provide assistance and advice. 21 MARKET ENTRY GETTING TO THE PHILIPPINES Visas More information on visa requirements can be UK visitors to the Philippines require a full found via the Philippine Embassy in London. British passport. No visa is required for stays of up to 21 days, but visitors wishing Philippine Embassy to stay longer do require one, as do those 6-8 Suffolk Street taking up employment. Visas can be London obtained from the Philippine Embassy in SW1Y 4HG London and are usually processed within Tel: +44 (0)20 7451 1800 three working days. Email: email@example.com Website: www.philembassy-uk.org There are special non-immigrant visas issued to foreign nationals who are Travel routes employed by enterprises registered with Most major international airlines fly to the the Philippine Economic Zone Authority Philippines. Ninoy Aquino (MNL) Airport is (PEZA) and Board of Investments (BOI), the country’s main international airport and is as well as foreigners temporarily assigned located 12km south-east of Manila. Departure to work on government projects. They will tax for international departures from MNL enjoy multiple entry privileges and will be is PHP750 (children under two years of age exempt from registration with the Bureau and transit passengers are exempt). of Immigration (BI) and immigration taxes. Some of the larger international hotels For businesspeople looking to make provide free transport direct to the hotel from longer-term investments in the Philippines, MNL into central Manila. Before departure the government grants a Special Visa for it is advisable to check with your travel Employment Generation (SVEG). This sets agent about hotel courtesy buses or cars. guidelines to allow foreigners an indefinite stay in the Philippines on conditions of Taxis are readily available and take between investment in legal and sustainable business 30 minutes and one hour to travel between employing at least ten Filipinos. MNL and central Manila. The cost should be around PHP200-500. In addition to MNL, there are also international airports in Laoag, Subic and Clark in Luzon; Cebu in Visayas; and Davao in Mindanao. 22 There are regular internal flights in the Philippines between its 80 domestic airports. There is also an extensive road network. Major roads are driveable, but conditions can be difficult. Hire cars (with and without drivers) may be arranged via hotels. There is a very limited rail service. By sea, inter-island ships connect Manila to major ports. Ferry services connect the smaller islands. Within Manila, taxis are the most convenient way to get around and are widely available both on the street and at hotels. Hotel taxis tend to be more expensive (PHP250 per hour), but are safer and more reliable. Jeepneys (originally made from US military jeeps left over from World War II and known for their flamboyant decoration and crowded seating) and buses are inexpensive ways of getting around most places. In central Manila, commuting can also be done via the railway system. LRT connects the northern district of Monumento to the southern district of Baclaran, with stations situated at major intersections. MRT traverses the length of EDSA and connects North Avenue in Quezon City to Taft Avenue in Pasay City, passing through the major arteries of Makati’s financial district. 23 GETTING STARTED FINDING A CUSTOMER OR PARTNER Once you have identified Effective methods include: the best market-entry option • Overseas Market Introduction Service for your company in the UKTI’s Overseas Market Introduction Service (OMIS) can be used to tailor-make Philippines, the next step is a list of potential customers, agents, distributors or partners and arrange a to find potential customers programme of meetings with them when or partners. you visit the Philippines. OMIS can also be used to engage UKTI to arrange a seminar or product introduction event in the Philippines, which can be an effective way of getting your message across to a number of potential customers. • Trade shows and exhibitions Numerous trade shows and exhibitions take place in the Philippines throughout the year and these can be an excellent way to meet potential customers face to face. However, arranging appointments in advance to meet pre-identified contacts at niche industry events is essential if you want to make effective use of your time. • Trade missions UKTI regularly supports trade missions to the Philippines, organised by trade associations and local chambers of commerce. They provide an excellent opportunity for businesses to visit the Philippines to find out how business is done and generate valuable sales leads. 24 GETTING STARTED DUE DILIGENCE Many of the problems that foreign You will have more security if you know companies encounter when engaging in who the legally responsible person is, so business transactions in the Philippines could find out who you are dealing with. If have been avoided by carrying out some problems occur, it will be much easier to due diligence at the start of proceedings. address issues with the legally responsible person, rather than a middleman, There are different levels of due diligence who may go missing when problems arise. that are appropriate for different situations. The shareholders of the company are If your sole interest is in exporting, the bestresponsible for that amount of liability proof of a Philippine company’s ability to as registered capital on the business pay is whether it is able to raise a letter of licence. You can check whether or not credit from the bank. If so, you do not need the registered capital has been paid up to check the company’s financial standing by using a firm of accountants to get a as the bank will have already done so. Capital Verification Report. One simple piece of due diligence you can If you want to establish a business conduct in the Philippines is to get a copy relationship in the Philippines that goes of a company’s business licence, which will beyond exporting, you will need to carry tell you the following: out further research. A thorough evaluation of your potential partner may be time- • The legal representative of the company consuming and expensive, but doing • The name and address of the company so will greatly reduce the risk of serious • The amount of registered capital which is problems in the future. However, it is not also its limited liability enough to obtain a copy of a company’s • The type of company accounts, as they may not be accurate. • The business scope Accounts in the Philippines are unlikely • The date the company was established to be audited to the standards routinely and the period covered by the licence expected in the UK, and companies may have different sets of accounts for different You should check that the information audiences, so it is advisable to use such contained in the business licence matches data in conjunction with information what you already know, and if it doesn’t obtained elsewhere. then find out why. 25 GETTING STARTED DUE DILIGENCE (CONTINUED) There are a number of private consultancies that specialise in carrying out operational, financial, legal and technical due diligence checks on Philippine companies, typically by looking at the actual operation of the business, and building up a more accurate picture by carefully interviewing people who work in and with the firm. UKTI has lists of consultancies based in the UK and the Philippines, many of which provide due diligence checks. 26 GETTING STARTED EMPLOYING STAFF Recruitment channels Offer appropriate remuneration. Once you There are several channels for recruiting staff have found the right staff you will need in the Philippines. They include internal to give them good reason to stay with database searches, networking events, job your company. You will need to provide fairs and newspaper advertisements. sufficient remuneration to ensure that you recruit and retain the best employees. Major publications with dedicated Classified Ads sections include the It is advisable to conduct some market Philippine Star, the Manila Bulletin research to get a clear idea of appropriate and the Philippine Daily Inquirer. salary levels for the positions you wish to fill so that you can make an offer that is in Recruitment steps line with current market rates. When you are recruiting in the Philippines, make sure that you carry out all the normal Salaries vary throughout the Philippines. steps that you would if recruiting in the UK. In general, they are increasing, due to economic growth, especially in the BPO/IT/ Ensure that candidates’ technical and call centre industries. However, they are still linguistic capabilities match their claims significantly lower than in Europe, North and that you hire staff at the right level America and Australia. The minimum wage for the role. A recent MBA graduate for non-agricultural jobs in central Manila returning to the Philippines from overseas is PHP382 per day (since June 2008). may not have the experience to navigate the complexities of setting up a company Offering employees the opportunity to in the Philippines without seeking train overseas is also very attractive at all professional advice, nor the capabilities to levels, although make sure that in return develop business at a senior level. for providing such training they make a commitment to stay with your company. Carry out due diligence. To ensure that In addition, be sure to invest in the the staff you are hiring are right for mentoring of Philippine management- your company it is essential to ensure level talent; this can be done by giving thorough due diligence in recruitment, them experience of working around the especially for senior managers. This organisation and grooming them for global includes conducting personal background corporate positions. A clearly defined career checks and scrutinising all references progression route is also attractive and will before offering them the position. help to retain staff. 27 GETTING STARTED EMPLOYING STAFF (CONTINUED) A lot of smaller firms setting up an office in the Philippines may just employ Working hours one person to deal with all aspects of Employees in the Philippines running the company. Although this generally work eight hours per day may be convenient and cost effective, it or 48 hours per week. Some offices might not be the best way to run your and industries work half or full days Philippine operation. Staff selection will on Saturdays. prove vital; although the individual may be very willing, honest and capable, they Commercial offices might not be competent or experienced Monday to Friday: in international business practices. If your employee is not familiar with the relevant 0800-1200, 1300-1800 Saturday: rules and regulations pertaining to the 0830-1200 running of an international office or business in the Philippines, then you may Government offices soon have to deal with issues of non- Monday to Friday: compliance, which could prove very costly. 0800-1200, 1300-1700 Moreover, having one person in control of all financial and legal aspects of the Banks business is obviously risky. Monday to Friday: 0900-1500 The laws on labour standards and employment relations in the Philippines are Shops consolidated in the country’s Labour Code. Monday to Sunday: 1000-1930 British Embassy Monday to Friday: 0800-1700 28 GETTING STARTED LANGUAGE Communication is crucial to the success of Filipino is the major language of the any company, yet business is all too often broadcast media and cinema, but less lost through simple misunderstandings important than English as a language of that could easily have been avoided. publication and for academic/scientific/ When working across different time zones, technological discourse. It is used as a cultures and languages, the chances lingua franca in all regions of the Philippines for misunderstanding are multiplied and is the dominant language of the armed considerably. It is therefore essential that forces and a large part of the civil service. you have an appropriate communications strategy in the Philippines. There are eight major dialects: Tagalog, Cebuano, Ilocano, Hiligaynon or Ilonggo, In the Philippines there are between 120 Bicol, Waray, Pampango and Pangasinan. and 175 languages, depending on the method of classification. Only two are Even though a business visitor to the considered official – English and Filipino. Philippines can survive very easily without learning Filipino, knowing how to speak a English is widely spoken and is the few phrases will be greatly appreciated by dominant language in business, the local population, who will believe that government, the legal system, medicine, you are making an effort to understand the the sciences and education. country’s culture and people. It will also stand you in good stead when negotiating prices in shops. 29 GETTING STARTED MARKETING To win over potential new customers in the Philippines you will continually need to reassess your marketing strategy. Trade shows and exhibitions have already been mentioned as ways of reaching potential new customers, but you still need to persuade them to buy your product. You will need to ensure that your sales literature is effective and decide what kind of advertising is appropriate. You may need to adapt your product to meet Philippine preferences or requirements in order to be able to sell it. Ignoring local regulations, tastes and cultural preferences is a recipe for failure. New entrants to the market with a recognised brand may wish to consider some sort of product launch or press conference to announce their arrival in the Philippines. Companies that have appointed local partners can usually be guided by them with regard to the type of advertising and sales promotion that would suit the launch of their products. It is often possible to use the facilities of the British Embassy in Manila or the residence of the British Ambassador in the Philippines to announce the launch or presence of UK goods and services in the country. Specialist consultancies can be appointed to develop a marketing strategy appropriate to your product and to the region of the Philippines where it will be sold. 30 31 BUSINESS ISSUES AND CONSIDERATIONS Although ripe with opportunity, the Philippine market can present significant challenges for foreign companies. Whether buying, selling or investing, whether dealing in physical products or knowledge, it is important to be aware of the complexities and risks. None are insurmountable, but they do require time and resources. 32 BUSINESS ISSUES AND CONSIDERATIONS INTELLECTUAL PROPERTY RIGHTS (IPR) The importance of IPR protection is fully The Intellectual Property Office (IPO) is recognised by the Philippine Government. the government agency responsible for the It is committed to streamlining the implementation of the Intellectual Property administrative procedures for registering Code (RA 8293) in the Philippines. The law patents, trademarks and copyright; sets out the rules on the application, liberalising registration on the transfer of registration and granting of trademark, technology; and enhancing enforcement copyright and patent rights, as well as the of IPR protection. penalties on IP infringement. Domestic legislation providing protection Generally, application for patent and for copyright, patents and trademarks is trademark registration follows a set procedure based on that of the USA. Application for and requires a minimal fee. Copyright registration should be made through a registration, on the other hand, requires copies patent agent in Manila. of the works (published or unpublished) to be deposited in either the National Library The Philippines is a member of the World or the Library of the Supreme Court. Intellectual Property Organization (WIPO) and the World Trade Organization (WTO) and is a party to the Berne Convention, an international agreement governing copyright. There is no specific provision in the country’s copyright legislation for protection of broadcasting and computer software. The general duration of protection is lifetime plus 50 years. In 2006 the US Trade Representative removed the Philippines from its Special 301 Priority Watchlist, reflectin
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