Phl can be next investment hub, says consulting firm

MANILA, Philippines - The Philippines has the inherent attractiveness and ability to seize upcoming business opportunities as it steps up as the next favored destination in ASEAN.

According to Synovate’s business consulting head for the Philippines, and Singapore group director, Anand Kumar, the Philippines needs to immediately seize this opportunity.

The Philippine government, he said, must come up with more incentives for setting up manufacturing hubs. It must also address its steep electricity rates to lure more foreign direct investment (FDI).

“Take full advantage of the coming AFTA (ASEAN Free Trade Area) agreement. Expand to offering higher-value added services,” Anand advised.

He said “the opportunity needs to widen at this point in time. It may not be available in three to five years so it needs to be seized now.”

In a recent road show presentation entitled Developments in ASEAN markets - Assessing the risks and Opportunities, Anand tackled the potential of ASEAN countries, including the Philippines, and identified them as the most promising emerging growth markets next to the giants India and China.

Explaining the trend, Anand noted that “for the past 10 years, export powerhouses Japan and Korea have remained stagnant.” He added that the ones leading growth are the other countries in the Asia Pacific including ASEAN.

This is due, Anand said, to the combined exports of China, Indonesia, Malaysia, Vietnam, India, Australia, Singapore, Philippines, and Thailand that have exceeded the exports of Japan and Korea.

China and India have the largest GDP (gross domestic product) in Asia, while Indonesia ranks first among ASEAN countries.

Anand explained that although cheap labor helped China sell itself as the workshop of the world, “historical wage increments and the revaluation of the renminbi (RMB) has eroded the cost advantage that China enjoyed 15 years ago.”

Anand highlighted the fact that the hourly wage difference between developed economies and Tier 1 cities in China has reduced significantly, with potential wage parity being forecast in the next three to five years.

With China ceasing to be attractive as a low-cost manufacturing hub for new FDIs, other countries can vie for the post vacated by the Awakened Dragon, Anand said.

Furthermore, Anand said India and Indonesia’s double digit median household income growth eliminate them from the list of alternate low-cost countries.

Vietnam, meanwhile, is plagued with problems of high inflation coupled with significant currency devaluation.

This means other ASEAN countries, including the Philippines, can take advantage of this niche.

Anand acknowledged that potential investors must be wary of negative factors such as poorly executed governance and contracts as well as simply pursuing an ineffective mode of entry into the market.

Having emerged as a low-cost country in terms of wages, plus its proximity to the demand centers in Asia (China, India and Indonesia), Anand believes that the Philippines can be the next investment hub.

“Usually, when they say the Philippines, people think it’s relatively expensive but that’s not the case,” he said.

“If we were to do the differential equation for the Philippines, we will notice that there is a significant variance between developed economies average hourly wages against the Philippines wages,” Anand added.

Apart from wages, Anand continued, the Philippines also has an inherent advantage in cultural factors - the accent and general amiability of the locals are certainly attracting more investors to the country, and this is best evidenced in the establishment of more BPOs in the country.

“They say India is cheaper and has more call centers but it was the Philippines that was crowned as the number one choice in call centers in the world by the International Herald Tribune,” Anand said.

“People here are more hospitable. The accent is right, the use of the English language is right, the way they speak is right. These small things are now suddenly starting to make a big impact in big decisions such as how and where companies are going to invest in the future,” Anand concluded.