Introduction
With rising global competition and business transactions, it is essential to know how to conduct business in another country, and also what the best opportunities are for certain products and industries in that country. As Boler students, it is up to us to become knowledgeable in this regard and perform the necessary research in this area in order to provide valuable insights when entering the workforce.
Political Environment Analysis
When analyzing whether or not to sell a product or service in a certain country, one must gain information about the political environment of the country they are seeking to do business in. The Philippines’ political structure is one of a democratic republican state, formed under the 1987 Constitution with a presidential government in place. The current president of the Philippines is President Rodrigo Duterte, who was elected on June 30th, 2016. Power in the Philippines’ political structure is equally divided among three branches, including the Executive, Legislative, and Judicial branches. At the local government level, the Philippines is divided into provinces, cities, and municipalities. Each province is led by a governor, and each city and municipality is headed by a mayor. Furthermore, the cities and municipalities are divided into barangays, which are headed by barangay captains. The local government units in the Philippines are responsible for providing social services to the country and are also authorized to impose local taxes and fees in order to help fund operations. In addition to being divided at the local government level, the country is also divided into seventeen regions. This division allows for aid in administration, with each region having some commonality in terms of food, culture, dialects, and location. Each province, city, and municipality is then a member of one of those seventeen regions, which allows for regional interests to be a part of planning. Beyond the structure of the political environment, one also needs to determine whether that government is stable enough to be conducting business in that country or not. In the past, the Philippines has gone through a number of challenges with the Spanish, American, and Japanese governments, and has also experienced a significant amount of corruption and political instability. There is currently a moderate likelihood that the Philippines will suffer from political instability, and its impact on the United States would be moderate as well. With that being said, the Philippines’ growth of political instability stems from the fact that there is some opposition going on between the government’s domestic and foreign policy agenda. Since Duterte took office, statistics have shown that an estimated 1,790 suspected “drug pushers and users” have been killed due to Duterte’s strong campaign and advocacy for getting rid of the drug problem in the Philippines. In recent findings, it has been shared that President Duterte will withdraw the Philippines from the treaty that created the International Criminal Court. This was in response to the inquiry into allegations against Filipino officials for committing mass murders during the course of Duterte’s rampage on the drug problem. With the withdrawal, the country is now at even more risk for political instability. In addition to the drug problem, the country has experienced severe corruption in the past years, and it continues to be a problem that is going unsolved. About one in four companies say that they have encountered bribery while doing business in the Philippines, and about one in five believe that they lost an investment opportunity to a competitor due to a bribe. Another political risk that is current to the Philippines is that the economy is in a groundbreaking ascent, making political risks more unpredictable due to Duterte’s rule.
Economic Environment Analysis
Another vital factor to assess when analyzing whether or not to do business in a certain country is to look at the country’s economic environment. Such factors that affect a country’s economic environment include those such as employment, income, interest rates, consumers’ behaviors, and demographics of the country. As of 2018, the Philippines has a population of 106,010,341, with a growth rate from 2017 of 1.52%. The median age in the Philippines is about 24.3 years old, with the age group of 25-54 years making up about 36.99% of the country’s population. The population of rural citizens in the country is about 44%, with a 1.57% annual rate of change for urbanization, meaning that about 46.6 million people live in areas that are classified as urban. Some major cities in the Philippines include Manila (the country’s capital), Davao, Cebu City, and Zamboanga. With these cities being the major cities in the country, they could provide some potential for our product to excel in those areas. The Gross Domestic Product in the country is about 6.7%, with the main drivers of this growth in GDP being Manufacturing, Real Estate, Trade, Renting and Business activities. In addition to the GDP, the country’s per capita income level is documented at about $2,990 for 2017, which is equivalent to about 155,239 Philippine Pesos. The currency exchange rate for Philippine Pesos to USD is that one Philippine Peso is equivalent to about .019 US Dollars. The inflation rate in the country has achieved an all-time high since September 2014, currently being at 4.5% as of January 2018. This high inflation rate can indicate potential risks for the country’s economy since when price levels of goods and services increase, then each unit of currency buys fewer goods and services. Furthermore, this inflation rise can be said to be due to costs rising faster for food and transport while costs of housing increased as well. On top of a rising inflation rate causing potential risks for the country’s economy, findings have shown that the Philippine Peso has been forecasted to weaken due to the forceful trade stance between China and the U.S. Also, an article that previously came out stated that the Philippine Peso has been predicted to be Asia’s worst-performing currency in 2018, especially considering that the Philippines did not get a good amount of investor inflow in 2017. Due to that fact, it has weakened aggressively and remains vulnerable due to the country’s external payment position that will continue to deteriorate because of more economic activity causing a fuel for demand for capital equipment and consumer goods. In order to boost aspects of the economy, President Duterte has recently secured loans from both China and Japan. These loans will help the country to establish its first subway, and to also implement railways and highways across the archipelago, which would be an estimate of about $180 billion for the project. Although these plans are employed to boost the economy, there have been signs in certain economic sectors, such as consumer spending, that have been slowing down. While there are decreasing trends in certain areas, the country should expect to see continuing growth in GDP if the country follows through with its infrastructure projects.
Based off of these statistics, as well as other online sources, the economy system can be described as being market-oriented with some pricing mechanisms remaining in some sectors in order to protect consumers. With the many structural reforms in the past decade that are ongoing, the country is expected to hit higher economic growth in the coming years.
Business Environment Analysis
Conducting a business environment analysis is another important aspect when considering doing business in another country. The Philippines government has an attitude that is very open to and welcomes foreign investment and management due to the fact that foreign companies play a big role in creating employment in the country’s workforce. On top of being welcomed into the country’s business environment, foreign investors have a significant range of incentives that are available for investment activities. Some incentives for investing your business in the Philippines includes those such as the country being a strategic location with having a gateway to the large Asian market while also being a promising location for Asia-Pacific expansion agendas. There are also a vast number of special economic zones and free ports that were created to allow goods that are being imported into the zones to be tax-free unless they are withdrawn for us in the domestic market. On top of the many incentives that the Philippines provides for foreign countries to do business in their country, the Philippines also has a ready supply of extremely skilled people that are ready to work, which includes professional, managerial, and technical workers. Labor costs in the Philippines ranges from about $10.84-$27.98 for a daily general worker whom is semi-skilled to about $30.02-$40.04 for more skilled labor workers. With the population in the Philippines being pretty youthful, this also allows for a strong market for consumer products if foreign countries were to invest in the Philippines. Although there are many positives about the business environment in the country, the Philippines recently slipped to an even lower rank for ease of doing business in the country, being at 113 out of 190 countries this year. Furthermore, the country ranked pretty low on additional indicators of ease of doing business, with the ranks as follows:
• Starting a business: 173rd
• Dealing with construction permits: 101st
• Getting electricity: 31st
• Registering property: 114th
• Getting credit: 142nd
• Protecting minority investors: 146th
• Paying taxes: 105th
• Trading across borders: 99th
• Enforcing contracts: 149th
• Resolving insolvency: 59th
The World Bank further illustrated how difficult it is to open a business in the country by comparing an entrepreneur for a potential software company in Canada versus the Philippines. In Canada, it would take about two days and less than one percent of per capita income to start his business, whereas in the Philippines, it would take that same entrepreneur about twenty-eight days and around sixteen percent of per capita income to achieve the same objective.
Some major exports of the Philippines include exports that are dominated by electronic components such as electronic microcircuits and semiconductors, and the country’s major trading partners include Japan, the U.S., the European Union, and China.
Foreign investors also need to take into consideration the legal system of the potential country in order to make sure that they can be protected properly. The Philippines’ legal system follows the U.S. model extensively, and can be time-consuming and bureaucratic. When selling a product in the Philippines, the consumer product must include the following information: registered brand name, trade mark, business name, country of manufacture, address of manufacture, general make ingredients, and net quantity of contents. Additionally, the Philippines is a member of the World Intellectual Property Organization, with good intellectual property protection laws in place, but some concerns still inherent about the level of reliable and effective enforcement of those laws.
Cultural Insights of Doing Business in the Philippines
Before conducting business in a foreign country, one also needs to analyze and become adapted to the various cultural dimensions of that potential country. The factors needed to probe of the prospective country include the religion, ethnic makeup, languages, sports, beliefs and values, unique business customs, and much more.
Major Religions, Ethnic Makeup, and Languages
92.5% of the Philippines’ population identify as Christian, with Islam growing in some southern regions. The ethnic makeup of the country includes majority of the people being from the Austronesian descent who migrated from Taiwan throughout the Iron Age and are referred to as ethnic Filipinos. Many of these Filipino people are from the ethnic groups of Tagalog, Cebuano, Maranao, and Bicolano. Additionally, there are also many foreign minorities in the Philippines, including the ethnic Chinese, Americans, and South Asians. The official language in the Philippines is Filipino, with English, Spanish, and Chinese also being popular languages. Although Filipino is the dominant language, English is the main language that is used in business, government, and school. You can also find local laws being written in English, which makes it easier to do business in this country for foreign investors.
Sports and Recreation
Back in the day, the popular sport in the Philippines was cockfighting, which consisted of gambling on outcomes of fights. Nowadays, the major sports include soccer, basketball, and boxing. Some regional sports in the country consists of Arnis, known as martial arts, Dumog, which is a type of Filipino wrestling, and Sikaran, which is a form of kickboxing.
Differences in Beliefs, Values, Customs, Behaviors, and Role of Family
The Filipinos put a lot of their beliefs into religion, and also into supernatural powers. They view success as being a blessing from above due to your faith and luck, rather than something you gained from working hard. Some religious practices for the Filipino people include going to mass, praying the rosary, devoting time to the saints and the Virgin Mother, and anointing the sick. Many people in the Philippines believe that if one is sick, many will not be cured by medicine, but will be cured rather by prayers and spiritual fellowship. Interpersonal relationships are a vital core value for every Filipino, with high value being placed on sensitivity and regard for others. In the Philippines, family is said to be the foundation of social life. Without it, social interactions would not exist. Although the nuclear family is the core family unit, it is not uncommon to see three or more generations living together in one house. The extended family most often lives within close proximity to their other relatives. This is important and easier to gather for large celebrations such as birthdays, weddings, and other events. Filial Piety is also very important to Filipino culture. It is understood as essential in order to maintain the collective face (reputation, dignity, honor and influence) of the family and to avoid experiencing hiya. Unlike the United States, where the father figure is seen as the head of the household, the matriarch in a Filipino home is most often the eldest woman, typically the grandmother. She is also responsible for taking care of all financial needs of the home as well as collecting income from every member of the family. The parents of Filipino children often work and live overseas. This occurs so they can provide a better life for their family that lives in the Philippines. They will constantly be sending money for their children’s education and balikbayan boxes to their family. A balikbayan box contains various items such as clothing, household objects and gifts for their family. Filipinos also believe that each member of the family has certain duties they need to uphold. Observing and performing these duties ensures harmony in the household and among family members. Gifts should also only be given when it is appropriate. Most gift giving occurs when you enter another Filipinos household. To Filipinos, presentation is very important, as it shows that you put a lot of time and effort into the gift making it personal. Once they are received, they are never opened immediately or in front of other people as it is seen and rude and inconsiderate. They simply set the gifts aside and open them in private.
Unique Business customs, Etiquette, and Practices
Before investing in the Philippines, it is essential that one knows the various business customs and practices that are unique to the country in order to excel at one’s job in a foreign land. Personal relationships play a large role in conducting business in the Philippines, as they prefer face-to-face meetings over phone calls, since the latter are seen as impersonal. If one wants to succeed in doing business in this country, then one will need to ensure that personal contacts are developed since the Filipinos invest much of their time and effort into their personal relationships and want to develop relationships with the people rather than the companies doing business. Additionally, when doing business with a third party, it is essential that you introduce that third party to Filipino businessmen and women since they like to work with people that they trust rather than not meeting the person they are doing business with. Also, Filipinos will be very eager to get to know more about your life and will ask a variety of questions about your personal life, as they are known to be aggressively nosy, which is somewhat different to what we are used to in America since America is an individualist country, rather than a collectivist one. Individualist countries are known to encourage individual success rather than group success, and therefore, collectivist countries are more likely to share information with each other, even if it is extremely personal, so that you are seen as one of the group. This specific aspect about a country can be hard to adapt to, especially when coming from and individualistic country, so one needs to ensure that they are open to more in-depth and personal conversations when conducting business in the Philippines. Furthermore, Filipinos will expect you grant privileges for them based off of your friendship, constituting a relationship that goes beyond the business you have brought into their country. The impression you give a Filipino will go a longer way when they make their decisions, with price coming in second if they actually like you as a business partner. In summary, if one decides to conduct business in the Philippines, one needs to ensure that they develop a long-term personal relationship with the Filipino whom they are doing business with in order to allow for a successful business opportunity.
Unique Aspects of Written, Oral, and Non-Verbal Communications
Filipinos communicate indirectly to avoid a loss of face or embarrassment on either side of a conversation. They spend a lot of time paying attention to the posture, tone of voice, and expression of the other person to interpret the meaning of things they are saying. It is important to pay attention to these things if you’re doing business or conversing with a Filipino because subtle mannerisms that wouldn't be a big deal to Americans, can give Filipinos the wrong vibe and can even come off as rude. Be sure to check for confirmation and clarification multiple times when asking questions or conversing. When speaking to those who are older or of higher status, Filipinos tend to use more polite forms of speech. At the end of phrases, sentences, or questions, they will say ‘po’ to demonstrate this respect for hierarchy. Compared to the United States, it is not uncommon for relatives or friends of the same gender to be seen holding hands or linking arms. This is meant to show as a sign of affection or friendship between the two. Although this is common among men, women are seen as very modest and conservative with public displays of affection very uncommon if not happen at all. They also dress modestly, especially in public and stay away from blasphemy and cursing as it may cause themselves to lose face. Filipinos typically have a relaxed approach towards timekeeping and punctuality when it does not involve business. It is fairly common for Filipinos to arrive an hour or two hours after the designated time of the event. This is commonly referred to as “Filipino time”. At times, laughing may indicate happiness or pleasure, while other times it may be used to relieve tension. In some circumstances, laughter is used as an attempt to cover embarrassment. A major difference between the United States and the Philippines is that they do not point to get someone’s attention. Instead, they often pucker their lips or move their mouths in the direction they are pointing. If they want to get someone’s attention it is not uncommon for them to “psst” at people. As this can often come off as rude to people in the United States, it is not meant in that way, it is just a common way they use to get someone’s attention.
Country’s Culture Described Through Hofstede’s Model of Cultural Dimensions
Hofstede’s Model of Cultural Dimensions does an excellent job of preparing people for interpersonal relations across borders, taking into consideration the effect of a country’s culture and values on its people’s behaviors and communication styles. Before conducting business in another country, it is important to look into that country’s dimensions based on Hofstede’s theoretical framework, which includes six cultural dimensions. The first dimension is Power Distance, with which the Philippines has a score of 94, which means that the country has a hierarchical society. In this type of civilization, people accept the order that they are placed into without asking any further questions so that they do not offend the person above them. It also shows that people are not equal in the workplace, with the ideal boss being a benevolent autocrat. The second dimension, Individualism, shows to what degree the country’s society has for interdependence among its citizens. The Philippines scored a 32, meaning that it is way more of a collectivist society rather than individualistic. In a collectivist society, one must put group success before an individual’s own success so that you are constantly helping the group and taking responsibility for it. Masculinity is the third dimension, with the Philippines scoring a 64 in this category. With that score, it is indicated that the Philippines’ society is driven by success, competition, and achievement versus being focused on caring for others and quality of life, as seen in a Feminine culture. Next on the cultural dimension framework is Uncertainty Avoidance, which refers to a society’s degree of being threatened by unknown situations. The Philippines scored a 44 in this category, meaning that the culture has a higher tolerance for uncertain situations and ambiguity and does not necessarily prefer avoiding them. The fifth dimension of Hofstede’s Model is Long Term Orientation, which describes how much a society values saving for the future rather than for quick results. The Philippines scored on the lower side of this dimension, with a 27, indicating that they are more normative rather than pragmatic, concerning themselves with traditions and not so much with saving for the future, but rather with achieving quick results. Lastly, Indulgence is the sixth dimension, indicating the extent people try to control their desires. The Philippines scored a 42, meaning they are more of a society of Restraint. With not being so indulgent, this shows that the Philippines’ culture is more pessimistic and people residing in the country feel as if their actions and desires to do what they want are restrained by social norms in their country.
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Summary: Fun Facts and Key Challenges, Risks, and Threats of Doing Business in the Philippines
With voluminous data pertaining to each country throughout the world, it is important to know what the key challenges, risks, and threats of doing business in that country are, as well as some fun facts in order to know the country better. Although it seems as if the Philippines provides many incentives to do business in the country, there are some weaknesses and threats that our group identified. The first weakness that was found was that the many political and security concerns in the country have been listed as reasons not to conduct business in the Philippines due to much needed economic reforms that have been stalled for years. Also, rebellions seem to endure in various parts of the country, providing another reason why one might not want to do business in the Philippines. Another weakness that one might think about is that a main concern for foreign investors is the country’s ageing infrastructure. Additionally, doing business in the Philippines poses some risks, with one being the risk of natural catastrophes and extreme weather potentially causing economic disruptions for many businesses.
Contrary to the dark facts of doing business, one might also want to think about fun details pertaining to the country they are doing business in so that they can relate to the business people in that country on a more personal level. A unique fact about the country is that about eleven percent of the Philippines’ population work overseas, and the country is the top supplier of nurses in the world, accounting for about twenty-five percent of nurses coming from the Philippines. Additionally, if you ever need a coconut, the Philippines is a great source of them, being the top producer and exporter of coconuts throughout the world, shipping off about 19.5 million tons of the fruit annually. Lastly, the Philippines is home to three of the ten largest shopping malls in the world, which can provide our product with great places to be sold.