Entrepreneurship in the Philippines

In the Philippines, entrepreneurship is viewed as important to empowering

the poor, enhancing production, and as an impetus to innovation. The 1987
Philippine Constitution recognizes entrepreneurship as an engine of economic
growth. Article XII Section 1 highlights the role of private enterprises in
supporting equitable distribution of income and wealth, sustaining production
of goods and services and expanding productivity, therefore raising the
quality of life.

The Philippine Development Plan (PDP) further reinforces the thrust on

entrepreneurship through trade and investment to achieve the governments
goal of economic development and job creation. Based on the plan, measures
for macro-economic stability, employment, trade and investment,
agribusiness, power-sector reforms, infrastructure, competition, science and
technology, and anti-corruption are being pursued to strengthen Philippiness
competitiveness and contribute to job creation.

In 2011, there were approximately 830,000 business enterprises in the

Philippines. Of these, 99.6 percent are classified as micro, small, and
mediumsized enterprises (MSME) which are responsible for 38 percent of
total job growth.

Enterprise development and competitiveness

Enterprise development in the context of competitiveness not only entails the

ability to produce products that can be accepted globally but also the level of
support given to enterprises to help them produce, innovate, and gain market
access.

While relatively mature and free, enterprise development in the Philippines is

beset with critical challenges. These challenges are found within the context
of pillars identified by the United Nations Development Programme in its
report Unleashing Entrepreneurship: rule of law, physical and social
infrastructure, domestic macro environment, and global macro environment;
a level playing field, access to financing, and access to skill development and
knowledge.

If the challenges remain unresolved, gaps in enterprise development have

the potential to thwart the countrys competitiveness and ability to effectively
function within global production networks.

Entrepreneurship in the Philippines

Mark, a Filipino entrepreneur, gives us his perspective on entrepreneurship in

the Philippines. For many Filipino entrepreneurs, entrepreneurship is a
necessity.

For this article, I interviewed a friend of mine from the Philippines named
Mark.
(article continues below)

Mark and I met through a mutual acquaintance. We have been in contact

mainly through email ever since.

What helped our friendship to survive has been our interest in

entrepreneurship. Mark is a serial entrepreneur. In this article, I conducted an
interview with Mark, and, in his own words, he tells of entrepreneurship in his
country, the Philippines.

How tough is it to become an entrepreneur in the Philippines?

I won't mince wordsit's tough to do business in my country.

It's not as if there is a lack of entrepreneurs, or negosyantes as we call them

in the Philippines. A stroll down a side street in Metro Manila will reveal
dozens of businesses lining the road: tiny food kiosks, small groceries,
vendors, internet cafes, you name it.

From one standpoint, the Philippines is highly entrepreneurial, but there's the
ruball of these businesses are small to medium scale enterprises; in fact,
they account for 99% of all business establishments and 60% of all exporting
firms in the country. And only a few of them can claim to be a success.

What are the challenges and opportunities entrepreneurs face in the

Phillippines?

There are countless reasons for this sort of hardship, but here's the gist of
them.

The World Economic Forum recently released the Global Competitiveness

Report for 2007-2008, ranking the Philippines as Number 71 out of 131. Far
from the bottom, but really bad news considering that neighbors Malaysia,
Thailand and Vietnam ranked 21, 28 and 68 respectively.

Even more interesting is what the report states as the country's biggest
problematic factorperceived corruption in the government. To put it bluntly,
government money is winding up in official's pockets.

Granted, there are other factors, but this last one feeds the others. The
systematic plunder of resources means fewer infrastructures, less budget for
education, less access to technology and finally, less access to financing. Add
that all up, and the prospect of starting up a business in the Philippines is
very bleak, indeed.

And yet, you'll still find negosyantes here, everywhere you go.

The reason behind this drive for entrepreneurship is need itself. With a lack of
jobs for unskilled people, coupled with the pressure to providing for one's
family, many Filipinos look for income in any way they can.

Thus, you see the proliferation of SMEs all over the country, anything from a
small store beside the house to a mobile food stall installed on a bicycle's
sidecar.

But grinding poverty isn't the only reason that Filipinos start businesses.
Despite all the hardships, Filipinos are a creative, energetic people, filled with
innovative ideas and a drive to take care of their own.

Most of all, they have an indomitable optimism that on some distant, secret
day, they will finally strike it rich.

And there are some who have.

Can you share with us any successful stories of entrepreneurs from the
Philippines?
Yes, absolutely. Henry Sy Sr. began life as a businessman with a simple
sundry store. After World War II, he hit upon the idea of importing shoes from
the United States.

As his business grew and he started selling items other than shoes, he
realized he could import one other thing from the US: the concept of the mall.
That's how Henry's brand name for his chain of malls, ShoeMart, came to be.
In the early 1980s, Henry built SM North Edsa, at the time when the country's
political and economic turmoil under a dictatorship made such a venture
ludicrously risky. People scoffed at Henry's investment, but he paid them no
heed.

Now, Henry Sy owns three of the ten largest malls in the world, and the SM
brand has become a household name all over the country. At age 82, he is
one of the richest men in the Philippines with a net worth US$ 1.4 billion,
ranking 349 in Forbes magazine's 2007 Annual Billionaire's list.

Another equally astounding success story is that of John L. Gokongwei, Jr. At

the age of 13, he would sell thread, candles and soap at a local market,
sometimes earning up to 20 pesos a day. But after World War II, he managed
to scrape together 50,000 pesos. From there onwards, he and his family
moved on to importing, manufacturing, and creating break-out brands.

In his own words, "From one market stall, we are now in nine core businesses-
including retail [Robinsons Retail Group], real estate [Robinsons Land
Corporation, Robinson Galleria, Manila Midtown Hotels, etc.], publishing,
petrochemicals [JG Petrochem], textiles [Litton Mills], banking [Robinsons
Savings Bank], food manufacturing [Universal Robina Corporation], Cebu
Pacific Air and Sun Cellular [plus Digitel]."

These two gentlemen are prime examples of Filipinos who made it big, but
they are by no means the only ones.

In recent years, many successful businessmen began sharing their success

stories with the rest of the nation, in hopes of igniting further efforts in
entrepreneurship. One of the most prominent movements is Go Negosyo.
Beginning from a simple book, "Negosyo: Joey Concepcion's 50 Inspiring
Entrepreneurial Stories", it has evolved into a website offering all sorts of
entrepreneurial services for Filipinos, including inspiring anecdotes,
mentoring, toolkits for start-ups, and a means of connecting with others
owning related businesses.

Using the concept of synergy, local entrepreneurs are out to make sure that
not only will they find personal success, but that Filipino entrepreneurs as a
whole will succeed together.

Electrical supply
1. Introduction

Electronics and electrical equipment have played an important role in the

Philippine economy

since the 1970s and form the foundation of the countrys export basket today.
In 2014, these

sectors accounted for 47% of total exports from the Philippines at US$28.8
billion, of which

41% was from electronics and 5.4% from electrical equipment, and 0.6% from
consumer

appliances and electrical industrial equipment.1

From a global perspective, while the Philippines

is not the leading exporter in any particular product category, it is known for
its significant

number of semiconductor assembly and test (A&T) facilities. The global

economic crisis (2008-

09), combined with the exit of Intel (2009), had a significant negative impact
on electronics

exports and, although steadily increasing, they have not yet rebounded to
pre-crisis levels.

Nonetheless, investment in the electronics and electrical industries has

picked up since 2010; in

the past five years, there have been 110 new investments in these sectors.
Another positive

sign is the low exit rate; with the exception of Intel, companies that have
invested in the

Philippines have stayed, with several operations dating back to the late
1970s and 1980s. These

firms have not only stayed, but have continued to grow and expand in the
country due to the

quality of the workforce and satisfaction with the Philippine Economic Zone
Authority (PEZA)

environment. The growth of the industry has significantly benefited from

foreign investment and

close ties with Japanese firms.

Moving forward, there are several opportunities for the Philippines to grow its
participation in

the electronics and electrical equipment value chain. Within the subassembly
and final product
stages, the Philippines is primarily engaged in storage devices and office-type
equipment.

Recently, exports of industrial equipment have also increased, which is

among the fast growing

export categories globally. The country has also started shifting exports
towards China/Hong

Kong, the largest electronics exporter and the fastest growing consumer
market, which is a

positive sign for the country. Perhaps the most promising are opportunities in
automotive

electronics and electrical components and subassemblies; demand for motor

vehicles as well as

electronic content are rapidly growing in Asia and globally, and the
Philippines already has a

considerable footprint in this area.

This report uses the global value chain (GVC) framework to analyze the
Philippine current

position and potential for upgrading in the electronics and electrical

equipment GVC. GVC

analysis examines the full range of activities that firms and workers around
the world perform

to bring a product from conception through production and end use. As part
of this analysis,

multiple factors are considered; trade patterns, end markets, product

characteristics,

technology-intensity, labor, standards, and regulations, among others. This

information is

analyzed from a global perspective and from the viewpoint of the Philippines
in order to

provide a holistic picture of the situation when identifying trajectories for

entry, growth, and

upgrading along that chain. In particular, the report exams opportunities

where the Philippines

can attract subassembly/final product manufacturers, such as electronic

manufacturing service

(EMS) providers.

2. The Electronics and Electrical Equipment Global Value Chain

The electronics and electrical (E&E) industry encompasses a broad range of
component,

intermediate, and final products that feed into a number of different end
markets. World

exports in 2014 of electronic components were US$616 billion, electrical

equipment was

US$508 billion, final electronic products and specific subassemblies was

US$1.4 trillion, and final

consumer appliances, equipment and specific subassemblies was US$342

billion (Table 2).

The electronics segment in particular is characterized by rapid technological

change, large

investments in research and development (R&D), and demanding quality

standards. Many key

manufacturing and business processes have been formalized, codified,

standardized, and

computerized including product design (e.g., computer aided design),

production planning,

inventory and logistics control (e.g., enterprise resource planning), as well as

various aspects of

production (e.g., circuit board assembly, test and inspection, and materials
handling).

This combination of standardization and automation has created a recipe for

value chain

modularity in which multiple firms participate in the chain, assembly

operations can easily be

separated from technology development, and basic, high-volume

components can be substituted

with relative ease. This substitutability narrows profit margins in the

manufacturing segments,

and has led to a high degree of offshoring and outsourcing throughout the
value chain as firms

seek to lower costs. Lead firms today now focus on their core competencies,
which also

happen to be the most profitable segments of the chain (e.g., product

development, consumer
research, branding and marketing), and rely on contract manufacturers,
component producers,

and service providers to do the rest. These suppliers have flexibility to locate
where total costs

are lowest; at the subassembly and final product stages, these costs can
either be driven by

capital intensity for highly automated operations, or labor-intensity in lower

volume operations.

At the same time, the relative level of standardization has enabled electronics
to be embedded

in a wide range of final products from cars and consumer appliances to

medical devices,

aircraft and industrial equipment, offering diverse opportunities for

customized components

that have the same fundamental architecture. This, coupled with the ability
and desire for

convenience and connectivity, a trend commonly referred to as the Internet

of Things (IoT),

is causing simple electrical products to increasingly become smart devices.

E&E products are

now pervasive in all walks of life, thus creating continuous opportunities for
new and existing

E&E companies along the value chain.

The following sections present the global value chain, discuss the global
geographic distribution

of demand and supply, examine the key actors in the chain and how the
chain is impacted by The Philippines in the Electronics & Electrical Global
Value Chain

public and private institutions, provide an overview of the human capital

requirements for the

various activities in the chain, and identify typical upgrading trajectories.

Analyzing the global

dynamics of this industry provides important insight for developing an

upgrading strategy for

future growth in the Philippines.