The Philippines, an archipelago of more than 7,100 islands, is a tropical country located in Southeast Asia. The country is a member of the Association of Southeast Asian Nations (ASEAN) a geo-political and economic organization which includes its neighbors: Brunei Darussalam, Cambodia, Indonesia, Malaysia, Thailand, Laos, Myanmar, Singapore, and Vietnam.
The Philippines is considered as a newly industrialized country. While greatly affected by the Asian Financial Crisis in the late 1990s, the Philippine economy rebounded strongly starting in 1999 thru recent times. As of the second quarter of 2007, the country was the fastest growing economy in Southeast Asia posting a GDP growth rate of 7.5 percent.
Though a largely agricultural-based economy, its services sector is leading the country’s economic boom fueled by a rapid growing outsourcing industry. The brisk demand for offshore call centers has also attracted higher-end outsourcing such as legal services, web design, medical transcription, software development, animation, and shared services. Major companies that are operating in the country include AIG, AOL, Barnes & Noble, Chevron, Citigroup, Dell, HP, HSBC, IBM, Intel, JPMorgan Chase, Motorola, Procter & Gamble, Siemens AG and Trend Micro. NEC Telecom, Caltex, Fujitsu and Alitalia are also among major outsourcing clients.
Other important sectors of the Philippine economy include agriculture and industry, particularly food processing, textiles and garments, and electronics and automobile parts.
Among the notable products produced in the Philippines for the world market are the ABS systems used in Mercedes-Benz, BMW, and Volvo cars; Intel’s processors; Texas Instruments DSP (digital signal processor) chips and Trend Micro’s anti virus software.
The rest of the ASEAN countries also share a positive growth in their respective economies. As of September 2007, GDP growth rate for the entire ASEAN region was at 6 percent – which is noteworthy as the rest of Asia (with the exception of China and India) is expected to experience a slow down.
Growth for the ASEAN region was led by exports, foreign direct investments and tourist inflows. Major commodities exported to major trading partners like the U.S., the European market, Japan, and China included electric machinery, equipment and parts; nuclear reactors, boilers, and machinery and mineral fuels, and oils products. Major sources of foreign investment were the EU countries, Japan and the U.S. While major tourist inflows came from European countries, Japan, China and Korea.
The Philippines lure foreign investors on the strength of the following claims:
– It is the third largest English-speaking nation in the world. As a former colony of the U.S. the country adopted English as the medium of instruction as early as the 1900s.
– The country’s literacy rate of 94.6 percent is among the highest in the world.
– Low cost of doing business. Philippine wages are less than a fifth of that in the U.S. Communication, electricity and housing costs are significantly lower. Foreign investors estimate 30 to 40 percent savings when doing business in the country.
– Strategic location – the country is located in the heart of the fastest growing region in the world – Asia. Major air and sea lanes pass through the country.
– Liberalized and Business-friendly Economy. National and local laws promote a liberal business environment. Major industries are deregulated and there are a number of economic zones.
– Communication and transportation networks are already in place.
In what economic sectors is each country strong?
The Philippines – light industry (electronics, software development, automotive parts, etc.), and service-sector economy.
Brunei – Crude oil and natural gas production.
Indonesia – Major industries include petroleum and natural gas, textiles, apparel, and mining. Major agricultural products include palm oil, rice, tea, coffee, spices, and rubber.
Malaysia – Malaya became the world’s largest major producer of tin, rubber, and palm oil.
Thailand – Major exports include rice, textiles and footwear, fishery products, rubber, jewelry, automobiles, computers and electrical appliances.
Singapore – The economy depends heavily on exports refining imported goods, especially in manufacturing which is well-diversified into electronics, petroleum refining, chemicals, mechanical engineering and biomedical sciences manufacturing.
Vietnam – The largest producer of cashew nuts with a one-third global share and second largest rice exporter in the world after Thailand. Other key exports are coffee, tea, rubber, and fishery products.
Do the strengths of each country really complement one another,
or do they compete directly with one another?
One of the ongoing efforts of the ASEAN organization has to do with integration and complementation of individual countries’ strengths.
On the general view, each ASEAN member has comparative advantages that do not pose direct competition to any other member. For example, the Philippines harps its labor force, Singapore focuses on entrepot activities, Thailand trades rice, Malaysia peddles tin, while Vietnam corners the cashew market.
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It is, however, on the second tier of products that the countries have similar markets and outputs. ASEAN pushes for agreements that promote complementation in these areas or industries. One of the strategies is the promotion of growth areas like the Brunei, Indonesia, Malaysia, the Philippines East ASEAN Growth Area and the Mekong Basin Cooperation.
Established in 1992, the ASEAN Free Trade Area (AFTA) serves as a trade bloc with an aim of promoting local industries with focus on each country’s competitive advantage.
As you consider investing in the Philippines, what management issues concern you?
According to the U.S. State Department, corruption is often cited by foreign businesses as a serious impediment to investment. The United Nations Development Program (UNDP) even claims that as much as 13 percent of the national budget is lost to corruption. It should be noted though that the problem appears also in other countries in the region.
Peace and order is also a major concern due to the fact that terror threats come from two active major groups – an armed communist-leaning organization and Muslim secessionists in the southern part of the country. The country has been in the headlines in the past few years due to kidnappings of foreigners and bombings of public places though lately this appears to have been abated.
Inadequate public infrastructure has also been raised and it is hoped that the government address this in the short-run to accommodate the expected increase in investment.
A perceived slow judicial system could also be a concern as this could be an impediment to a long-term investment.
Discuss regional integration and analyze future prospects for integrated regions.
During the hand-over of Rodolfo Severino as ASEAN Secretary-General in 2003 he stressed regional integration as the watchword during his five-year term.
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During that period, three forms of integration were stressed: the integration of the ASEAN market; the integration of the new members into the ASEAN regional body; and, the integration of all modes of ASEAN cooperation – political, economic, and social.
Since then the ASEAN market is growing as one market and China now considers ASEAN as an individual economy; and, new countries have been accorded as candidate or observer states (Papua New Guinea and Timor Leste). While various agreements were reached to promote all areas of cooperation (for example, the Border Crossing Agreement between BIMP-EAGA countries), the organization was criticized for its “soft” approach in promoting human rights and democracy in Myanmar. International observers even view it as a mere “talk shop.”
Identify the important management issues in the foreign direct investment decision
Foreign direct investment decisions are usually based on, among others:
– Cost Savings and Cost Restructuring. The lowering of the overall cost of the service to the business.
– Staffing Issues. Access to more skilled, cheaper and more sustainable labor force.
– Local fiscal incentives, such as tax concessions, cash grants, and specific subsidies.
– Existing domestic infrastructure and communications system
– Business friendly environment (less red tape) and
– A stable local economy.
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Hookway, J. Wall Street Journal, August 31, 2007; Page A1
Baloghm M. Asian Economic Growth to Slow in 2007, Credit Suisse online retrieved on
November 7, 2007 from the World Wide Web:
Philippine Medium-Term Development Plan (2004-2010). National Economic and
Development Authority. NEDA sa Pasig
Investing in the Philippines a short Guide and Comparison (2006). ACA for You, Retrieved
from the World Wide Web on November 6, 2007:
Philippines: 2006 Investment Climate Statement (2006). U.S. State Department. Retrieved
from the World Wide Web on November 6, 2007:
Overview: Association of Southeast Asian Nations (2007). ASEAN site. Retrieved from the
World Wide Web on November 6, 2007:
Mydans, S. (2006) Corruption harmful to Philippines’ health. Retrieved from the World Wide