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Philippines' export market potential

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It has been 35 years since trade between Australia and the Republic of the Philippines commenced. Now two-way trade is valued at $2 billion per annum. The potential for expansion is significant and, provided export business principals are observed, there is a real market opportunity for Australian products, technology and services, in spite of the current value of the Australian dollar. The population of the Republic of the Philippines (RP) is expected to top 100 million this year. The country is classified as a developing nation and suffers endemic poverty but has tremendous potential for development, provided necessary reforms are undertaken rapidly. It is a thriving democracy, capitalistic in attitude and has a wide variety of natural and human resources. The Republic of the Philippines comprises more than 7,000 islands, very tropical in the southern regions to a milder climate in the north. Interisland travel is easy and convenient either by boat or air. The capital, Manila has a population variously estimated at 15 to 20 million and is located on the major island of Luzon which has reasonable highways. Long distance freeways have been recently completed. The people are a mixture of many races, reflecting a long and interesting history of occupation and settlement as a result of wars, encroaching spheres of influence and, of course, trade and commerce. The mix of Filipinos with Chinese, Ammanese (Vietnam), Spanish, American and of late just about every other ethnic group of migrants and you have a real melting pot of interests and cultures. Filipinos have a reputation for flair, beauty, musicality and genuine friendliness.

Historical relations

Australia has a 150-year history of trade with the Philippines and the relationship between both countries has been cordial since the Second World War. Formal recognition was established when the Republic became independent from USA in 1946. Australia has appointed good professional ambassadors and diplomatic staff to the Republic over a long period. Australian businesses first became seriously interested in the Philippines as an overseas market when the Whitlam government of the early 1970s reduced import tariffs into Australia. A wave of Australian manufacturers and investors rushed into the Republic because it was perceived as a low-cost country and the easiest in which to establish a presence in Asia. Unfortunately this perception was incorrec and their haste resulted in poor planning. There was no vision for international business activities, just small businesses in the Philippines. Also the Australian traders were totally unprepared for the different nuances of doing business in the Philippines and Asia. Just because Filipinos spoke English did not mean they understood doing business the Australian way. The first waves of attempted trade relations were, in general, unsuccessful. The failures were not only restricted to small businesses but also bigger players such as those in metal roofing products, food, clothing and furniture manufacturers.

Since those days Australian exporters have become far more sophisticated and international trade savvy and as a result the current limited numbers of traders and manufacturers enjoy solid and expanding business. The Philippines maintains a good trading relationship with Australia which exports raw materials, bulk food of all types including beef and lamb, assorted specialist products and professional services, education, horse breeding, clothing and fashion, cosmetics and toiletries, wine and water.

Recent trends

There has been a remarkable transformation in Philippines industry since 1990. Many of the traditional export manufacturers and products have fallen by the wayside and new and emerging industries have been born out of necessity. Where sugar, rice, timber, furniture niche manufacturing were once leading industries, in the last 20 years there has been a sea change. More than 10 million Filipinos work aboard, mainly as contract workers in the Middle East and other Asian countries. In addition to skills export, electronics, call centre services and back office operations are the current key industries, with processed food becoming increasingly important. In early 1990s, following United States withdrawal of its military presence in the Philippines, the local governments of Subic and Olongapo converted the military bases into freeports and industrial centres, known as Export Processing Zones. In addition to the Subic Bay Freeport Zone and the Clark Special Economic Zone at Clark, Angeles City, provided the third point of the free trade focused triangle, with the conversion of an international airport. These EPZs offer full turnkey facilities to foreign companies that engage in manufacturing for exclusive export and provide many incentives, especially duty free shipping, concession leaseholds, advanced communications technology and selective tax holidays for operations and staff. These benefits have attracted thousands of foreign companies establish manufacturing or transport facilities in the Philippines. The main participants are from China, Taiwan Korea, Japan, USA and Europe. The concept has become an international success story. Even Indian call centres are relocating to the Republic of the Philippines because of the cost and language benefits. It is anticipated that these services will be worth billions of dollars generated from a rapidly expanding base.

Political and legal culture

Democracy is alive and well in spite of the political and economic machines being controlled by family dynasties and interest groups. Like Australia there are three formal levels of government: Federal, Provincial and Municipal. These seats are hotly contested. Politics plays a very important aspect of everyday life and everyone has an opinion and while volatile at the Federal level, the situation is fairly stable. The Republic enjoys free press unmatched in Asia and, apart from two instances since the overthrow of Marcos, orderly elections have been conducted with this year’s reported as the cleanest and most accurate ever resulting in the new President  Benigno Simeon C Aquino III.

The legal system follows the American model but procedures tend to be drawn out and subject to interference by vested interests. Historically, investments are safe from confiscation and protections provided by laws and regulations are observed and respected. The bureaucracy is sometimes slow but, as in most Asian countries, it can be negotiated easily.

Local support

There are nearly 300 members in the Australian and New Zealand Chamber of Commerce in Manila and 40 members of the Australia Philippines Business Council in Australia. These two business interest groups provide market monitoring and offer information and expertise from their own experience to newcomers and help these new expatiates settle in. Austrade also has a highly efficient office in Manila with experienced long-term staff who can provide assistance in appropriate trade areas. In addition the Philippine Government has a trade office in Sydney with excellent staff and also employs facilitators in Manila to assist with export enquiries. Immigration has played a major part in cementing good country to country relations. There are 250,000, Filipinos living in Australia,coming since the 1970s. The vast majority are qualified professionals working in accounting, banking, IT, the services industry and increasing numbers employed in medical services. There are about 3,000 Australians permanently based in the Republic, mainly retirees but also many with advanced technical skills in mining and manufacturing, as well as those involved in back office support and more recently call centres.

Useful contacts

Australian and New Zealand Chamber of Commerce, Manila www.anzcham.com Australia Philippines Business Council www.apbc.org.au Philippine Government Center for International Trade Expositions and Missions (CITEM) www.citem.com.ph Philippine Embassy, Canberra www.philembassy.org.au Philippine Consulate General, Sydneywww.philippineconsulate.com.au

Case study Lomar

Logistics and Marketing, Philippines Inc. (Lomar) established an offshore presence in Makiti City, Manila, in 1978 to provide oil exploration and mining services to foreign companies doing business or intending to do business in the Philippines. Australian expatriate Keith Schulstad identified a need for service provision in the then embryonic development of the Philippine energy and resources industries and leveraged his experience in mining and oil and gas in South East Asia and the Middle East to set up the first such company in the Republic. This helped attract Australian and other offshore services companies previously based in Singapore to the Philippines. LOMAR also played an key role in sourcing services, equipment and technology during the establishment of energy production in the North West Shelf off Western Australia. In 1985 Schulstad handed day to day operations over to fellow countryman Robert Goold. Today the company has diversified and offers a broad range of consultancy, logistics, outsourcing  and representative services to support Australian Technology exporters wishing to enter the Philippines. Its many international clients include aid organisations and the Australian and British governments. Schulstad says Lomar has acted as a catalyst for many start-up companies in the Philippines. "Recently a Lomar supply division has been established to support the oil and gas, mining, power and marine markets here and focus is being given to Australian companies who want to enter the Philippine market with related equipment and products," he says. "With a new president and administration there is a positive attitude to the future of the country and opportunities are available in a broad range of areas."

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