News and Events

Ready to Compete

Posted: 2013-07-27
Category: Opinion

Ronald U. Mendoza PhD and Aladdin A. Ko
AIM Policy Center


The imminent creation of the ASEAN Economic Community (AEC) in 2015 will result in a common market of about 600 million people, dwarfing the EU’s 500 million and NAFTA’s over 400 million. This common market will be home to a very large consumer base that firms from ASEAN and beyond will try to vie for. In 2009, the US$ 4.5 trillion in total expenditures in developing Asia represented 19% of total global expenditures. By 2030, if projections hold true, this number could reach up to US$ 35 trillion, easily trumping the forecast consumer expenditures in the rich OECD countries of about US$ 21 trillion by that time.

This changing international landscape begs the question as to whether Philippine industries have evolved to adapt and compete in this global economic environment. A brief assessment suggests that some important changes have taken place; yet in other aspects, much remains the same. Compared to its neighbors, investments, technology, and most importantly competition brought in by foreign direct investments (FDI), appear to be among the anemic aspects of Philippine industrialization. Bold steps will be necessary to take advantage of the very favorable present international investor perceptions of the country—and Philippine firms must prepare in order to take full advantage of deeper regional economic integration in the AEC.

Top 1000 Philippine firms: What has changed in the last twenty years?

Most of the firms that dominated in the 1990s – when BusinessWorld  published the first and second Philippines, Inc. reports – continue to have a strong presence today, and the list includes Meralco, Petron, and PLDT to name a few. Of the top 100 firms in 1990 measured according to gross revenue, over one-third is still in the top 100 two decades later.  Six of the top 10 firms have been in that elite group for at least the past two decades. The fastest risers, when comparing their rank in 1990 and 2009, come from the manufacturing, banking and sales sectors (see Table 1). Food producer Monde Nissin Corporation, for example, tops the list of fast risers, going from 850th in rank (according to gross revenues) to top 50th in the 20-year period. Monde Nissin holds the household brands of Lucky Me and M.Y. San.

Table 1. Fast Risers

Fast Risers Industry 1990 Rank 2009 Rank Change
Monde Nissin Corp. Manufacture of Food Products 850 50 ↑800
Banco de Oro Unibank, Inc. Universal Banking 257 15 ↑242
Amkor Technology Phils. Inc. Manufacture of Electronic Devices 326 99 ↑227
Samsung Electronics Phils. Corp. Retail Sale of Household Appliances 313 100 ↑213
Republic Cement Corp. Manufacture of Cement 279 81 ↑198

 

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FDI: The missing ingredient?

Some new firms have emerged in the Philippine industrial landscape in last two decades such as Hanjin Heavy Industries (ship manufacturing), Accenture, Inc. (business process outsourcing), and Numonyx Philippines, Inc. (part of the semiconductor industry that contributes heavily to the country’s export revenues). However, the vast majority of firms in the top tier of the Philippine industrial landscape are still the same ones since the 1990s. Introducing new players could enhance competition as well as promote competitiveness in the country’s industrial landscape. And unlike its ASEAN neighbors which have welcomed new firms that bring in linkages to production networks, foreign export markets and new technologies, the Philippines has been less successful in boosting FDI.

Recent years give reason for more optimism. As Figure 2 shows, the highest annual net FDI inflow has occurred in recent years, when compared to historical trends. For instance, manufacturing generated the highest FDI in 2012 with US$ 1.0 billion, up from US$ 119.4 million in 2011. This was buoyed by recent investments by multinational manufacturing firms. Nestlé, Murata, Epson, Coca-Cola and Suzuki all opened new plants in the Philippines in 2011 or 2012 while others such as Canon, Bandai, Procter & Gamble and Fujifilm announced multi-billion peso combined expansions for 2013 onwards.

Nevertheless, other ASEAN countries attracted significantly more FDI inflows compared to the Philippines. Last year, the Philippines posted US$ 2.0 billion in net FDI inflows, much lower than Malaysia’s US$ 9.4 billion, Indonesia’s US$ 19.5 billion, and Thailand’s US$ 8.6 billion. The disparity in FDI achievement between the Philippines and its neighbors is better illustrated by figures on FDI stock. The country is not only lagging behind – the gap with its neighbors is still increasing (see Figure 3).
 

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Competing in ASEAN

Triggering more foreign investments could be a key ingredient in promoting sustained, high and inclusive growth in the country. Deeper regional economic integration in the form of the ASEAN Economic Community (AEC) could provide this impetus. And in order to more successfully attract these investments, much has already been accomplished by the public sector in terms of promoting good governance, improving public sector efficiency, as well as continuing to improve infrastructure, energy and human capital investments.

Government can only provide an enabling environment—but it is the private sector that will ultimately need to seize the opportunities that AEC will provide. Philippine firms must start preparing for the increased competition and opportunities for growth within the AEC. For instance with increased trade openness, there will be opportunities to tap a larger regional market for Philippine goods and services. Similarly, this will imply increased competition in the domestic market, as goods and services from ASEAN economies enter our market. Ultimately, this should be a boon to the Filipino consumer as competition and trade could help improve product variety and temper prices.

In addition, mutual recognition of professional qualifications and increased cross-border mobility could benefit highly skilled ASEAN nationals—including accountants, architects, dentists, engineers, and medical practitioners. This is an area where the Philippines is expected to be a net gainer. However, this will also raise challenges for domestic firms to try to keep their skilled workers. For many industries it will be in their interest to collaborate more closely with the education sector to make sure that the supply of skilled young workers will remain stable.

Rather than shirk from this, Philippine firms should seize the opportunity—imminent regional integration in the AEC could serve as a healthy impetus to continue to strengthen the country’s recently improving economic competitiveness.

And it would be even better for promoting inclusive development if our large firms are able to effectively link-up with our small and medium scale enterprises so that the boon brought about by AEC is shared directly across a much wider swath of firms. The country’s net gains from this economic arrangement will depend heavily on how our firms and conglomerates are able to innovate, compete, and create jobs for Filipinos.

(This article draws on ongoing research on ASEAN economic competitiveness by the AIM Policy Center and its partners. The views expressed herein are the authors’ and do not necessarily represent those of the Asian Institute of Management.) +AMDG

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This article was published in the 2013 BusinessWorld Anniversary Report “Philippines, Inc.” on July 26, 2013.

Comments

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2014-08-29

One cannot develop nation's economy without FDI.

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2014-08-20

Very informative article. Thank you for sharing!

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2014-08-19

Great Post thanks for sharing quality content.

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2013-10-22

Thanks mate, this article give us very clear data. good article.

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2013-10-12

Every country needs another country to develop, no one can work on their own, even USA. Philippines is open for another partnership, I hope.

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2013-10-12

Good Article.

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2013-09-17

Every country needs another country to develop, no one can work on their own, even USA. Philippines is open for another partnership, I hope.

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2013-09-10

No developing economy can develop without FDI and Philippine is no different.

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