Making A Living In The Philippines!
The Streetwise Guide To Business, Employment And Investing!
Perry Gamsby
StreetWise Publications
Published by StreetWise Publications
Suite 1/22 Waikanda Cres, Whalan,
NSW, 2770 Australia
All Rights Reserved.
http://streetwiseworldpublications.info
http://lulu.com/perrygamsby
Copyright Perry Gamsby 2011
ISBN: 978-1-4658-0284-2
Smashwords Edition, License Statement
This eBook is licensed for your personal enjoyment only. This eBook may not be re-sold or given away to other people. If you would like to share this book with another person, please purchase an additional copy for each reader. If you’re reading this book and did not purchase it, or it was not purchased for your use only, then please return to Smashwords.com and purchase your own copy. Thank you for respecting the hard work of this author.
Updated September 2011
This Book Is Dedicated To The Memory Of John Brian Martin, 1929-2005. A Great Mate And A True Entrepreneur Who Never Gave In And Never Gave Up.
Introduction
Many of you may be considering operating a small business in the Philippines either as a form of income to supplement your retirement funds, provide your main source of income or to keep you busy during your retirement years. Others may be thinking of setting up family members in a business of their own to help them provide for themselves and perhaps ease the often incessant demands for financial help.
Whatever your reasons and whatever your business aspirations, doing business in the Philippines has some interesting challenges unique to the culture and the economy. There are many traps for the unwary, the naïve, the trusting and even the hard bitten and well experienced. Forewarned is forearmed and the information in this volume has been compiled at the expense of the dreams and aspirations, not to mention bank balances of not only myself, but many others who have gone before you.
Some of the information regarding government regulations and requirements is subject to change from time to time so I have utilised the magic of this electronic media to send the reader directly to the appropriate web site with the click of a mouse. Look for the hyperlinks and click on them while online to go right to the source of whatever is being discussed. If they didn’t survive the morphing into a PDF document then look to the bottom of the page where the URL will be listed as a footnote. You can copy and paste that to your browser.
I have been involved with the Philippines for over twenty years. Many of those years I went there for business or pleasure or both, two or three times a year for a week or two at a time. That was fine for developing insight to a certain stage, but for really getting to where you think you understand the people and the culture, there is nothing like living there full time. I did it for three years and thoroughly enjoyed it for the most part. For the rest, read this and my other books, Philippine Dreams - The StreetWise Guide To The Philippines, Filipina 101 –How To Meet The Filipina Of Your Dreams , Filipina 202 – How To Marry And Migrate Your Dream Filipina , Philippines Property Primer and Philippines Survival Handbook.
I lost a few thousand dollars in my first major business venture in the Philippines. I know how and why I lost it as well as where. I know what I could have done to avoid losing it and I consider it money well spent as far as getting an education goes. I plan to recover that loss with this book! Reading this book can save you many thousands of dollars, probably a lot more than I lost (US$7000 or Php355,000 at the time 2002-2003). It will also save you a lot of time and effort researching what you need to know to open and operate a business there.
I had some successes, including the creation of a new business from start to finish which is to this day providing an income for my brother in law and his wife and new born baby. Not to mention most of her leech like family. I have also had a few non-starters and some dismal failures and one shining success. I learnt several secrets to building a business in the Philippines and I share them all here with you for the investment of just a few dollars. Not a bad return on my years of sweat, toil, heartache and frustration. All bundled up in this one volume for you to take and absorb and hopefully apply, if only in part. All knowledge is wasted if it isn’t shared and knowledge and experience is the end result of surviving some bad choices and unavoidable events.
For those of you looking to find work here, it is possible but it’s by no means easy. I had several jobs in the three years I lived in the Philippines as a Permanent Resident. The most I made was US$1500 a month, the least was working for P200 an hour, or about US$4, good coin by local standards! In this book we’ll look at what the options are and help you make some more informed decisions if, like me, you don’t have a steady retirement income or pension and still have a family to support. It’s tough, but it can be done. I did it!
For those of you who have money to invest we’ll also look at ways you can put it to good use and hopefully create a passive income stream you can live off. Like anything in the Philippines, it isn’t easy but it can be done and there are more than enough people doing it and doing it well! If little else, perhaps I can give you some direction as to what NOT to invest in!
What is most important, especially if you are serious about making money in the Philippines, is a sense of humour and the willingness to never say die, never give up but know when to give in. The one big difference between your investment in this book and my investments in the Philippines…..You get an iron clad money back guarantee if you really feel it wasn't worth your money! Enjoy, Maraming Salamat Po!
Perry Gamsby
Disclaimer: The Author and Publisher of THE STREETWISE GUIDE TO MAKING MONEY IN THE PHILIPPINES! caution the reader that nothing in this book should be construed as professional advice. It is the opinion of the Author based on his own experiences and those collected from numerous other business owners, job seekers and amateur investors. Your results may vary and of course, before spending a single centavo, get professional advice, even if it is just your wife’s third cousin! You have been warned! The Philippines is no place for fools and their money!
Making A Living In The Philippines
Introduction
Part 1 The Marketplace
Chapter 1 So You Want To Run Your Own Business
Chapter 2 How Much Do You Want To Lose
Chapter 3 Location! Location! Location!
Chapter 4 Who Is Your Customer
Chapter 5 Competition-Filipino Style
Part 2 Investing
Notes On Part 2
Chapter 6 Investing In The Filipino Economy
Chapter 7 What Kind Of An Investor Are You
Chapter 8 Baboys And Manoks
Chapter 9 Hollow Blocks And Nipa Palms
Chapter 10 Stock Market Surprise
Chapter 11 Risky Business
Part 3 Minding Your Own Business
Chapter 12 Business Models
Chapter 13 Under The Radar
Chapter 14 Product Or Service Oriented
Chapter 15 A Pig In A Poke!
Chapter 16 Franchise Anyone
Chapter 17 Staff! Number One Pain In The Asset
Part 4 The Rules
Chapter 18 Who, How And What If
Chapter 19 Bringing Your Money In And Getting It Out Again
Chapter 20 How Can They Close My Business
Chapter 21 Getting Out Of Dodge
Part 5 Working For A Living
Chapter 22 The Filipino Workplace
Chapter 23 What Can You Do
Chapter 24 Expat Fat Cat!
Chapter 25 Making It Here, Spending It There
Part 6 What Do I Think
Chapter 26 Five Possible Winners For Under Fifty Grand
Chapter 27 Who Is Actually Making Money Here
Chapter 28 The Bottom Line
About The Author
Annexes & Extra Info
Annex 1 5th Foreign Investment Negative List A
Fifth Regular Foreign Investment Negative List
[Executive Order No. 139 Dated October 22, 2002]
Annex 2 5th Foreign Investment Negative List B
Fifth Regular Foreign Investment Negative List [Executive Order No. 139 Dated October 22, 2002]
Annex 3 General Registration Requirements
Annex 4 Registration Fees To Start A Business
Handy Links To Lots Of Information
Business Plan Guide
Part 1 The Marketplace
Chapter 1
So You Want To Run Your Own Business
Before even thinking about starting a business in the Philippines, ask yourself a few pertinent questions. Do a little soul searching if you will. Remember, many of us dream of being an entrepreneur but few even start and fewer still succeed. My all time number one question is this:
IF YOU COULDN’T RUN A BUSINESS BACK HOME, WHAT MAKES YOU THINK YOU CAN RUN ONE IN THE PHILIPPINES?
Firstly, let’s look a those who tried and failed back home, be that the USA, Canada, UK, Australia, wherever. Anywhere but the Philippines. What kind of business was it and why did it fail? What were the real reasons? Be honest, brutally honest because you are only fooling yourself if you don’t confront the truth.
Starting any business at any level of investment requires money, amongst other things. Why waste money if you don’t have to? Why not put it in the bank and live off the interest, or some other probably more lucrative form of investment? At the very least you should always have your original deposit still safely tucked away. Which reminds me of something my beautiful Filipina Asawa (wife or spouse) once said:
ASAWA’s TIP No:1
“You can only spend your kwarta (money) once my love!”
Money, like time, is a finite resource. Even Bill Gates only has so much of it to spend and once spent, it’s gone. Maybe not gone for good because he would either not spend it all at once or it would be spent to generate more money. But if you were Bill Gates or even on his Christmas Card list you wouldn’t be reading this, would you?
If your previous business attempts failed then learn from them, analyze them and benefit from the loss. I lost seven grand investing in a bar and resort on a beautiful tropical island, if I shrugged my shoulders or had a good cry then that was a waste of a lot of money. If I choose to analyze why, what, how, who, where, and when it was lost then I have managed to turn the loss of the cash into something hopefully more valuable; experience.
Even the most successful entrepreneurs have usually had more stinkers than sweet smelling success stories. They manage to learn from their mistakes and apply their new found and hard earned knowledge to the next deal. Eventually they either find the magic formula or they get over their fear of heights in one swift step.
Running a business in the Philippines is no different in many ways to running a business anywhere else; at least as far as basic business procedures may be concerned. There are numerous little traps for the unwary and the uninitiated but the rule of thumb is this:
IF YOU COULDN’T RUN OUT OF SIGHT ON A DARK NIGHT IN SHINBONE ARKANSAS, IT AIN’T NO DIFFERENT IN DOWNTOWN DANAO!
In other words, if you couldn’t run a business at home, where you know the culture, the law and the market, how can you think you can run a business in the Philippines? Which is bringing us to my first tip:
GET A BUSINESS EDUCATION BEFORE YOU LEAVE HOME!
By business education I don’t mean a Harvard MBA. Buy some books and do some reading. Start with basic business concepts, some easy to understand bookkeeping and a good primer on sales and marketing. There are hundreds of books available for sale, on the internet or at your local library. If you are several months or even a few years away from the big move, then make the most of the waiting and give yourself an education. If you are already on your way or actually living in the Philippines, then you have plenty of time to read up. Your money won’t run away if you tell it to sit, stay and roll over like a good puppy in some decent obedience school such as a term deposit.
Time spent educating yourself is never, ever time wasted. I have spent thousands of dollars on books and countless hours reading and absorbing their knowledge, probably far more reading than what is required for that MBA! Of course I have also applied a lot of it but don’t be in a hurry to spend your hard earned! If you bought a new computer it will one day crash on you and you will need to buy a new one. Or it will become obsolescent. Investing in yourself is never a waste of time or money as you never lose the knowledge. It may need updating and reviewing from time to time and recall might be a little difficult but it will always be safely stored somewhere in your brain.
As well as reading self help books on business topics, read a couple on self improvement and other related topics. Start with the classics such as Napoleon Hill’s “Think and Grow Rich” (you can get a free copy here) and Dale Carnegie’s “How To Win Friends And Influence People”. Work up to some Anthony Robbins and never forget my man of the moment, Robert Kyosaki and his Rich Dad/Poor Dad series. Priceless!
Talk to people who are in business. Donald Trump might be a little hard to pin down for a coffee and a chat but why not visit your local Chamber of Commerce? They love to help people even if you will be starting up in another country. If you are in the military, perhaps they offer retraining schemes prior to retirement? Leverage one of those to get some business skills under your belt.
Maybe a major reason for your previous failure/s was a lack of knowledge and know how. There are too many terrific experts in their own field out there who go into business for themselves and fail. Not because they aren’t a competent electrician, carpenter, mechanic, doctor, dentist, accountant or whatever. because they weren’t a good business man or woman. You don’t need to know everything but you do need to know two things:
Know What You Don’t Know!
Know Where To Find The People Who Do Know!
You do need to know enough to know if you are getting good advice or not. No point taking real estate investment advice from someone who hasn’t a single property to their name. They are not advisers, they are salesmen! Nothing wrong with salesmen but ask yourself this; if what they are selling is so good, how come they haven’t bought one?
You need good legal and accounting advice but you also need to be able to understand what they are telling you. In the Philippines, you also need to be able to tell when they are telling you a load of old Bulla Bulla! Trust me, you can’t trust just anybody in the Philippines and you would be well advised to trust almost nobody. At least until they either prove themselves or are too far from your money or your throat to hurt you! But more on that later!
This is where your business education will pay for itself many times over. I was looking at some Diploma and Degree courses being offered just the other day. They were in my professional field of sales and marketing and I had this vague notion that if I had some formal qualifications I might be better off. I sent off for their brochure as they didn’t include much in their ad and no indication of cost whatsoever. If they had they could have saved the printing costs and postage. The course content was nothing I hadn’t already learnt at the School of the Street and definitely nothing I couldn’t glean from the text books used in the course if I bought them separately and read them myself. Which is what you do at a tertiary education level anyway. In the UK they still say “I read Law at Oxford” or “he’s reading for a degree in English” because that is what you do. Elsewhere they may say they are studying for a degree but what is studying if not reading? So why not miss out on the middle man (the lecturer) and read the material yourself? The Diploma? That’s right, that little bit of paper that tells the world you is edu-mer-cated!
Since I am already in a terrific job working towards a partnership and thus business ownership and should I ever leave it I will work for myself again anyway, why do I need the piece of paper? Whom do I wish to impress? If you are going to start your own business in the Philippines or anywhere for that matter, what good is a Degree? The Diploma Course was going to set me back $7000 and a year of my life and the Degree a lot more. I could buy every book they use for a tenth of that and read them in a month or two. I might have some difficulty understanding some points which is where a tutor or lecturer might be able to help but for the sake of keeping several thousand of my dollars in my pocket, I’ll manage!
If I were 21 again and looking to be an employee then the Degree might make more sense, but none of you are 21, are you? The education you will absorb is the objective, not the qualification. So spend time and effort getting the knowledge, it will hold you in good stead later!
OK, so we have either had a failed business in the past or no business at all and yet we still wish to live our dream and run our own business in the Philippines. So read on! What if you have successfully run a business or several of them before, what difference will that make to your chances of success in the Philippines?
It will mean that at least you understand the basic concepts of supply and demand, profit and loss and so on. You know basic commerce and if the business you plan on starting there is the same as what you have run successfully here, then you are off to a good start. All you really need is the local market orientation training and away you go. More or less! Before we go there, let’s finish looking at basic business matters.
Regardless of your experience and results, you will need to know the basics. Get the education by reading, asking questions of people you respect and feel have something positive to add to your store of knowledge and do your research. Or homework if you like. Read up on the Philippines, the industry you intend to compete in and the marketplace, the people, the economy, history and everything you can learn about your target market. Remember what my old Sergeant told me when I was a young Digger (Aussie soldier)
TIME SPENT IN RECCONAISANCE IS NEVER WASTED!
There is an untold wealth of information available by surfing the net and asking the right questions of the search engine of your choice. Your government, whichever one it is, has invested a lot of your tax money developing export commissions and business advisory bureaux and other systems and schemes to help you do business overseas. Check out the handy Links at the end of this book as I have most of them already found and listed for you. They help large and small ventures but for them small is relative. Don’t expect too much help setting up Lola in a sari sari store but if you are thinking of importing or exporting then they can provide a lot of help and save a great deal of running around.
There are also numerous market research companies offering information reports for sale from US$30 to over US$3000! For an Adobe PDF file that may be out of date the moment they hit “save as”. I don’t want to do them out of business but that does seem a bit rich for my blood. Especially when you can glean what you need from here and the links given. Then again, if you need a thousand dollar report and you can afford to pay for it you won’t be looking for your info where we sell this valuable resource!
Do your recce, or recon as our American cousins would call it. Spend time researching the market and learning the basics of business. Once you feel you have a handle on those vital areas, then you can move on to actually spending a little of that money you have itching to get invested in your business. Don’t spend forever of course, too many people “analyze till they are paralyzed!” Learn all you can but don’t spend your life getting ready, the best lessons are learnt on the job!
Chapter 2
How Much Do You Want To Lose
A bit tongue in cheek but the message is this, the best way to make a small fortune in business in the Philippines is to start with a large one. There are very few successful businesses in this country, and fewer still owned by western foreigners. The Chinese have a lot of success, but you’re not Chinese, are you? Most have been living here since the Spaniards ran the place, some even longer.
The economy is ruled by a small group of families, most of whom are of Chinese-Filipino origin, Chinoys they call them. A mixture of Chinese and Pinoy, the local term for a Filipino. (Filipinas, or the female Filipino is called a Pinay ) The biggest businesses in the country are owned by Chinoys, including SM Corporation, San Miguel Foods/Beer/Coca Cola Bottlers etc and many others. The rest are owned by Filipino families from the days when Filipino meant a Spanish person born in the Philippines, the Ayalas are probably the wealthiest of these.
The laws covering what a foreigner can and can’t involve himself in are designed to protect these ruling class families and their vast land holdings, mining and farming operations, business and retail investments and their ownership of infrastructure, telecommunications, transportation and so on. A list of prohibited professions, trades and industries is listed at Annex 1 and Annex 2 at the end of this book. It is updated every few years as new lucrative industries develop or arrive in the country.
You can’ beat them and you are not supposed to. Even if you wanted to set up a retail outlet it really needs to be already in place overseas with dozens of stores and making millions and even Wal-Mart isn’t bothering to open any stores here. The reader of this book has no intention to compete with the top families and their business interests but the law protecting these also filters down the dung hill to exclude most of the little businesses as well.
The official reason is to protect the average Filipino from foreign takeover and exploitation and unfair competition (seeing as how all Kanos are rich remember) but again it is really there to protect the ruling elite, the Haciendero’s of old. Fine, it’s their country and while it has the net result of stifling foreign investment there are still ways around things and opportunities to be had.
If you set up in an export processing zone you can own the business yourself. Do you have a million or two to spend? If so then turn to the back of this book and ignore whatever I write after this. You don’t need this book! If you export more than 70% of your production or invest over US$200,000 in the business then you can own it. Otherwise you can own part of it. Depending on what industry and the type of business, you can own up to 40%.
That list also tells you which industries you can own a part of and how big a part that will be. I am looking at the average reader of this book to have between US$1000 and US$100,000 to invest with most readers closer to the lower figure than the higher one. That list cuts you out of a lot of basic businesses, including taxi’s, buses, boats, fishing, most farming and so on. Of course this is the Philippines so there is a way around everything more or less. Read on!
Chapter 3
Location! Location! Location
Like any business, anywhere in the world, location is the one of the major factors to it’s success. A business in the Philippines is no different. One of the greatest business success stories in modern times, regardless of whether you ever eat there, has to be McDonalds. Basically, buying a McDonalds franchise is a license to print money!
One of the big reasons you never see McDonald’s restaurants fail or close down is that the franchisor has done their homework before they allow the franchisee to set up in their name. A big part of that homework is the location chosen for the new venture. McDonalds know to the person how many people will pass that location in any given period of time, hours, days, weeks months etc. They know the average number per 1000 passers by who will stop in for a purchase and what that average purchase will be. They know exactly how many burgers, drinks, fries and whatever they need to sell each and every hour to make a profit.
You don’t have to be Ray Kroc, the founder of the McDonalds empire, to be successful, but you can learn from him. He was a fifty something paper cup and milkshake mixer salesman who wondered why one of his customers out in California was buying so many cups and mixers. He went and had a look at the 5cent burger fast food operation of the two McDonalds’ brothers and checked out their operation.
He realized the secret to their success was the limited menu and the speed with which they served their customers. He noted their system and organization and made them an offer to buy the business. From there he set up near Chicago and nearly went broke in the first year or two. But he persevered and now, nearly fifty years later the Golden Arches are as identifiable as the Coca Cola logo or the Mercedes three pointed star.
Along the way he and his partners learnt many valuable lessons, one of these being the value of having a good location. It may sound like simple common sense but how many times have you seen a business open its’ doors in some out of the way spot and close down weeks or months later? Maybe they chose the location because it was cheap? Maybe a relative offered it to them and they felt they couldn’t say no?
Robert Kyosaki tells how his Poor Dad (his real father) was made redundant from his teaching position and took his retirement money and soaked it into an ice cream franchise. The problem was the location stank. Instead of sucking it up, investing a little more and finding a better location; he spent his money on legal battles with the franchisor and his partners. End result? No business, no retirement money, nothing.
Which brings us to another important tip:
It’s OK To Change Horses Midstream If The Nag You’re Riding Is Drowning!
If possible, find a good location to begin with. Do your homework and spend some time staking the place out. Take note of how many people pass and how, car, foot, bus and so on. Who are these people? Do they have the cash to buy whatever it is you are selling? No point being in the middle of thousands of people with no money and no interest in what you are selling.
I have a friend with an internet café that is located on the first floor, above the street. He would have preferred a street level storefront but he was doing fine until the lying owner rented out the now vacant street front shop to another internet café after swearing in true Filipino fashion there was no way he would ever do that. Which brings us to another valuable tip:
Trust A Filipino As Far As You Can Throw Him And Even The Skinny Ones Weigh Too Much To Pick Up!
The simple fact is that the Filipino owner would have felt some kind of Utang Na Loob towards his fellow countryman. Utang means debt and na loob (loh-ob) means debt of honour or obligation. He will feel nothing of the sort towards a Kano. A Chinese he would respect because he knows they are meaner than he is when it comes to business but Kano’s are too soft, everybody knows that! If you had read my Philippine Dreams you would know all about these things. You really are a foreigner, an alien, a stranger in a strange land and a lot of what goes on will never “Grokk” with you! You are also fair game.
Of course there are honest people in the Philippines, the country is full of them. The trouble is you meet more of the other kind because prey behaviour elicits a predator response, anywhere in the world you choose to name. When I was in New York City I was warned not to carry a street map and not to look up! I couldn’t help myself and would back up against a building and oh so very casually steal a glance upwards from time to time!
Choosing the location for your business venture, unless you can run it from home, means hanging around the place you are thinking of leasing and taking notes. What are the noise levels at different times of the day? Videoke blasts out all day and all night in some places and make living and working there unbearable unless you own the Videoke player!
Neighbours can make or break a business. Gambling, chickens, domestic violence, loud motorcycles, loitering trike drivers and anything else you can think of can all effect the business adversely. One thing you can guarantee, especially if you appear to be successful and are the only business of your kind for miles around is that within a month or two of opening:
Every Dong, Ding And Jing Jing Will Open An Identical Business To Yours Under Your Nose And Up Your Kazoo!
My friend with the internet café had one other café in the building he was in when he opened and his research showed the area could sustain both businesses and perhaps another one. Maybe two. Within months there were four in the building and a store front café to boot! Of course they immediately began a price war which he wisely stayed out of. Once they had cut their throats deep enough they bled to death and closed down and he was left with just one or two competitors and his clientele had remained loyal. He had used other tricks of the trade to hang on to the customers and even grow the business.
His location was worth hanging on to, right across the street from a major Cebu university. Home PC penetration is still very low in the Philippines, despite the large and growing numbers of computer users. There is still a good market for the internet café business but it is disappearing. The secrets are great location, latest equipment, official licenses for software (Microsoft are starting to police these things as most Filipino owned cafes use pirated software) and a decent stash of capital to get you over the dead times. Schools and colleges close down for two or three months from late April to June, so business dies if you are relying on them to provide your customers. Locating yourself in a business district is not a guarantee of even profit throughout the year as most businesses will have their own computers and internet access and the employees will most likely use them for their chatting and emails. Another problem can be the noise generated from a Filipino neighbour café that specializes in games. You can bet your last peso they won’t worry about headphones for each computer!
Noise is a major fact of everyday life in this country. You are hard pressed to get away from it unless you are in the province and then the noise changes to a more rural cacophony. The down side to rural locations is often isolation, poor access, fewer cashed up customers and an unreliable power source.
Research your location well. Have the lease looked over by your attorney and watch out for funny clauses that may have you paying for things you would never imagine being liable for back home. As well as electricity and water, you could be up for taxes and rates normally paid for by the land owner. Their thinking is that since you are the rich Kano you can afford these things better than they can and it will maximize their profits. Which reminds me to include another tip:
Don’t Think They Will Think Like You Do, They Won’t! They Are Filipino, You Are A Kano!
Setting up shop in a major mall is a far better proposition than setting up in a low rent mall. You will have far more passing trade but be prepared for silly money rents. Once again, not being a Filipino and not having any clan ties to anyone means they can rip you off with impunity. After all, who is going to come after them? Clan or family ties mean everything in the Philippines. Which quickly brings us to another tip! Wherever and whenever possible:
Never Show Your Kano Face Until After The Ink Dries On The Contract!
You can’t run the business officially for the most part, at least not 100% and legally, so keep hidden behind your asawa or whoever the trusted Filipino is you are in business with. (See tip re trusting a Filipino). As much as possible stay in the background although at some stage you will have to check the place out and then the cat is truly out of the bag but it can’t be helped. Spend a lot of time on location. Choose wisely and don’t set up business in a location because this is where you live and you have no other choice. The business will be dead before it breathes its’ first breath. If you can’t secure a profitable, worthwhile location, don’t open the business! Simple as that! Ignore the pressure from your spouse who might only be thinking of how important she will look to her barangay. Suck it up and lay down the law, after all, it’s your money that’s behind this venture!
Chapter 4
Who Is Your Customer
Starting a business in the Philippines is no different in many ways than starting a business in downtown Chicago, Coventry or Cootamundra. Remember what I said before, if you couldn’t run a business back home what makes you think you can run one in the Philippines? One of the major considerations in any marketplace is to know your market. Know who is there, how much money they have to spend and what they usually spend it on. In other words, do your market research!
Luckily for you, buying this eBook is a major part of that research and I have done a lot of the generic homework for you. Market specific or location specific investigation still needs to be done closer to the start up date of your chosen business because many factors, especially at a local level, can change between me writing this, you reading it and then being ready to open your doors for the expected rush.
First of all, let’s look at the Filipino consumer market. We will presume you are looking to sell a product or service at a retail level to the end consumer rather than business to business or wholesale large quantities of import/export commodities. This could mean you are opening a restaurant, a sarisari store, a shop in a mall and so forth.
Most Philippines based market research companies will agree that the accepted benchmark is a Filipino household of five people. Call this the nuclear family. The official population of the country is around 84 million, so we can fudge around a little and adjust the figures for larger and smaller households and ethnic minority groups that live in different social groups and confidently say there are 15.3 million households in the Philippines.
Of these, 2.5 million households reside in the Metro Manila area, from Muntinlupa in the south to Valenzuela in the north. The Philippine advertising industry further breaks this down into five classes or demographics, A,B, C, D and E. In a survey carried out in 1999, the A and B classes comprised 1%, C class 9%, D class 55% and E class 35%. In the intervening years I would suggest the growth in the class percentages has not been that radical, so let’s use those figures for our calculations with an understanding there may be more people in the C class, a few more in the D class and the poor old E class, the ones officially below the poverty line, the same or perhaps a smidgen less.
A and B class people are the upper echelon of Filipino society. They are the wealthy, the well educated, the landed and they are concentrated in the metro Manila area. There is a higher percentage of people in the A and B classes in Manila than anywhere else in the country. C is the “middle class”, such as it is in the Philippines. D class is considered lower middle class and E the poor. E class people are the ones who make less than one US dollar a day, which was P32 when the survey was done and is currently around P54 at time of writing so we could argue there are either more E class people around nowadays as wages and incomes have not risen alongside the cost of living or fewer of the E class would be in the consumer market.
In rural areas the largest percentage of the population is clearly D and E class people, around 98% compared to 85%in urban areas. This is an important factor when considering the location of your business with a view to who your customers will be and how much they have to spend and most importantly whether they will even buy what you sell!
In 2005/2006 pesos, average household spending is considered to be P3,150 a month or P105 a day in rural areas and slightly more in the city at P3,592 a month or P120 a day. Convert those figures to US dollars and we are talking US$65 a month or US$2.20 a day! Less in the provinces! How much a slice of that pie do you want to slide into your cash register?
According to survey data from AC Nielsen Philippines, a look at spending priorities found that rural families spent more of their income on food (52%) than families in urban areas (40%). These food items included, carbonated soft drinks, noodles, coffee, snack foods, cooking oil, coffee creamer, dietetics, bouillon, chocolates, candies, soy sauce, MSG, biscuits, choco-drinks, sardines, powdered milk, hotdogs, vinegar, ready-to-drink juice in tetrapacks, luncheon meat, and corned meat. All standard sarisari store stock items.
The remainder of both rural and urban families’ income is spent on essential non-food items: laundry products, paper products including sanitary protection, diapers, bathroom tissue, facial tissue and table napkins, liquid shampoo, toilet soap, diapers, toothpaste, facial care products, hair conditioner, fabric softeners, lotion, bleach, deodorant, talcom powder/liquid (and insecticide by the urban shopper).
For anyone looking at what to sell to the average Filipino, this information is priceless. These are the spending priorities of average Filipinos in an economic climate where wages remain stagnant while prices rise regularly. You could infer from this data that even if the economy gets even tighter, these are the last things Filipinos will forego and will continue to purchase day to day.
While market analysts predict consumer spending to increase in 2006, this is due more to the increased prices of food, oil, electricity and so on than any increase in spending power. Traditionally even in hard times people have continued to spend on the “ACT” items, alcohol, cigarettes and tobacco; as well as gambling such as lotto and jueteng ( an illegal numbers racket popular in Manila in particular, pronounced ‘way-teng’) and of course the national sport, cockfighting. In fact, a recent study suggested that in hard economic times the poor actually spend more on these “vices” than they do on food and grocery items!
The study showed that the D and E classes accounted for an increasing share of spending on ACT items. Tobacco consumption among the D and E classes actually increased from 76.7% in 1997 (the year of the Asian Financial Crises) to 82.8 percent in 2000. I recall the release of several new brands of cigarettes in 2002 and 2003 that were priced at less than P7 for a pack of twenty cigarettes when purchased from Prince Warehouse Club, a cash and carry type supermarket chain. These brands would be marked up as little as P1 a pack and sold at the local sarisari stores. At the time the premium brands such as (locally made) Marlboro and Winston were selling around P20 a pack at the same outlets.
The marketing for these two levels of brand was interesting. Radio and television ads for the upmarket brands; billboards, bunting and posters at sarisari stores for the downmarket brands. I noticed the television ads for some of the upmarket brands were filmed in Australia where cigarette advertising has been banned for decades. Keep in mind the Philippines is a major producer of tobacco and many of the plantations are owned by wealthy A and B class Filipinos. Traditionally they have enjoyed tax subsidies and tariff exemptions to major trade partners such as the USA. For an interesting and informative overview of the economic history of the Philippines and an explanation why things are as they are I suggest you visit Clarence Henderson’s web site and read his excellent essays.
Another important indicator we can draw from the cigarette analogy is the location of the marketing for these brands. The downmarket brands were heavily marketed in the provinces but not so much in Manila. In the nation’s capital the marketing was on midstream and upmarket brands. Even the poor in Manila are better off, relatively speaking, than the poor in the provinces.
To give some perspective to that, families in Metro Manila are four times better off than the average family income for the Autonomous Region of Muslim Mindanao or ARMM. Families considered living below the poverty line in Manila are only 3.7% of all families living in poverty. Roughly this means 1.3 million people or 4.1% of all those in the country that are considered to be living in poverty, live in Metro Manila. So this means 95.9% of those living in poverty live elsewhere in the Philippines.
Contrast that with the fact that 21%, or about 10 million Filipinos who are not considered to be poor are living in Metro Manila. In other words only 79% of those above the poverty line live elsewhere in the country. For someone looking to set up a business, particularly one targeting the A,B or C classes then Manila is the place to be! There is a far higher concentration of people with more disposable income in Manila than anywhere else in the country. However, if your product or service is aimed at the D and E classes, then you would be better off looking at a provincial location or even a form of distributorship that takes your product nationwide.
When it comes to choosing a business to venture into, too many foreigners think in the same terms of who will buy as they would back home. The end result is either failure by setting up among people far poorer than any they have on welfare back home or they run out of customers. As well, they may find they are up against serious and determined opposition from established upmarket Filipino businesses that take offence to a new kid on the block from overseas.
I have long said that the way to make any money in the Philippines is to:
Make Lots Of Little Money From Lots Of Little People!
By “little people” I don’t mean to be derogatory, I mean people with less to spend. If you can take P1 a day off one person, in a year you have P365. If you repeat that with ten thousand people, then you have P3,650,000. From just a P1 a day spend. Selling a high ticket item might make you P1000 from each person but how often will they buy what you sell at that price and how many of the people in your marketplace can afford to spend that much even once?
It really is a numbers game and Philippine marketing professionals have twigged to the secret. Sell down to the D and E classes but sell up the amount you sell them. By that I mean sell to them every day but at a price they can afford. Let’s look at a few examples.
Anyone who has been to the Philippines would have noticed the tiny sachets of just about everything. Shampoo, shoe polish, candies, snack foods, laundry powder, soap, toothpaste, condiments; anything that can be sold by the portion including cigarettes and chewing gum and candies at one piece per sale. Why?
How come in the west we choose the “added value” route and buy the family size pack that has three times the usual amount of stuff at far less than twice the price of the basic portion? The answer is of course the cost. It is cheaper to manufacture one large portion than it is to manufacture three or four smaller portions. The savings on packaging, advertising and transportation are passed on to the consumer. Yet there is a problem there for the Filipino consumer we don’t really face in the west. The price, or cost of the larger, value added serving.
If you make P100 a day it is rather difficult to purchase the family size Item A for P200 when you can buy a smaller portion for P10. To get the same amount of Item A you may have to buy that smaller portion 25 times, a total of P250 but you can do it one day and one portion at a time. Since the item is sold at the sarisari store next to your house there is no inconvenience sending the kids off to buy it each and every day. For you there would be no reason or reasonable saving in going to the supermarket and buying the family sized pack and then not going back for another twenty days until all portions are used up.
You don’t have the buying (or spending) power in the one place at the one time. Life for you is not like that. Savvy local marketers know that, they know their market and their demographics and so they cater to their customers. In fact they are targeting the D and E class markets in greater numbers with more and more products coming in smaller and smaller portions. They balance the extra expense in manufacturing smaller portion sizes by the much greater increases in consumption and sales. Repeat sales of consumerable items, every day of the year.
There is a potential market of between 20 million and 60 million Filipinos who lack the cash flow to purchase in bulk or larger portioned products yet they still consume and have needs and wants. The amazing inroads made by cell phones and the Filipino mastery of text (SMS) messaging is one example. Cell phone prices have come way down so that even the D classes can afford second hand units. Few people outside of Manila have post paid phones, the vast majority of sales are for pre-paid cards, or “load”. Having a cell phone is fast going beyond a status symbol and becoming a necessity for many.
Until President Ramos opened up a lot of the hitherto strictly regulated industries and infrastructure such as telecommunications, getting a landline connected could take months and in many cases it took years. With the advent of cell phones and the opening of the industry to other carriers, a revolution occurred that has seen the Philippines lead the world in text messaging per capita. Whereas in many western countries SMS messaging is either still in it’s infancy or is more expensive than voice calls, in the Philippines it has spawned a virtual new culture, complete with it’s own language and text etiquette!
Competition for customers is fierce with major players Globe and Smart constantly coming out with new products and services. Originally load was purchased via cards that held a code that unlocked a certain amount of phone usage, or load. Then came e-load where the vendor transferred load electronically from their account to the customer and received a commission on the sale. Now they have “pasa-load” and Buddy Load products that allow one person to give as little as P12 worth of load to a friend, enough to swap several text messages. I have seen Filipinas sending text messages on two phones simultaneously as well as texting friends sitting in the same cinema as they are!
Obviously the Telco’s have realized the way to go is to sell to more for less and it is working like a charm. Another thing Filipino marketers are discovering is that the D and E classes are easier to sell to. They complain less, demand less and in real terms actually pay more for what they buy (as a percentage of their disposable income). In a nutshell, they are excellent customers. A, B and even C class customers are far more demanding and have higher expectations and also spend less of their income on each purchase. Plus never forget there are not as many of them!
Give some serious thought to what you plan to sell and to whom and where. Sometimes it just might be more profitable to shift your paradigms and check out the zeitgeist happening in places you wouldn’t normally look. (Sorry but I had to get those two hip marketing buzz words in, and in context!) While you do your dreaming, your due diligence and your market research, always keep this in mind:
You Really Are Not In Kansas Anymore, Dorothy!
Sources of Data:
"Basket Behavior: Understanding Buying Patterns, Especially during Hard Times" by Ramil Digal Dulle, BusinessDay Magazine, August 15-September 4, 2005 issue citing survey data furnished by Gladys De Veyra, AC Nielsen Executive Director for Retail Measurement Services
"Marketing success strategies revealed at PANA MBA confab", Manila Standard Today newspaper, September 8, 2005).
Chapter 5
Competition-Filipino Style
The Filipino has an annoying habit, to us foreigners, of copying whatever we do and doing so right next door! Don’t take it personally as they do it to themselves, each other that is. Filipino to Filipino. Let me elaborate.
If one person sees a niche for, say a tempura cart and sets up in business selling the fast food treat, within days he will be surrounded by several other tempura carts in a place where no cart had ever been prior to his the other day. Why?
If someone opened a pharmacy, then you can expect at least one more to open within visual distance, if not right next door. How come? The same goes for Videoke, Billiards, sarisari stores, hardware stores anything you can name. Carenderia’s or restaurants are another often cloned business. Why?
The short answer is probably that if you can make a peso doing that there then so can he. The long answer is a little more involved and requires more understanding of the Filipino mindset in particular and Asian thinking in general.
First of all you need to understand the concept of face, as in saving face, losing face etc. Face to a Filipino is Hiya, pronounced hee-yah. Face is very important to all Asian cultures and in truth just about every culture on the planet to one degree or another. Nobody likes to be made to look silly, some just take it more personally than others.
If you set up your business and it fails, you lose hiya. If you set it up where someone else is already operating an identical business and you fail then it is his fault, not yours. Blame him, the location, the customers anything but your incompetence. You can’t do that if you are the only business in the area or the only one of your kind.
Traditionally, similar product and service providers have always grouped themselves in one spot because everybody knows that is the carpenter’s street, or the jewelers’ street and so on. If you aren’t there then nobody will find you because they will all be looking for what you offer way over the other side of town. We used that method through the Middle Ages and into the Industrial Age but with the changes in our society and retailing in general, we moved on. Not so in Asia.
Depending on what kind of business you have in mind, this might be something you ignore, or something you ignore to your peril. If the clientele is used to going to Perez Street to buy car parts and you set up a car parts shop somewhere else, don’t be surprised if nobody bothers to come looking for you. There will be more than enough choice over on Perez Street where everybody knows all the car parts shops are. When in Rome….
However, if you do your research and think there are too many car parts shops on Perez Street to handle another one and you notice people from way across town having to travel for ages to buy their parts, it might be worthwhile setting up close to where they hop the jeepney to Perez Street. If you do that it is only a matter of time before your new location is filled to the gunwales (pronounced “gunnels”) with car parts shops. Welcome to ‘da Pilipeens!”
How about breaking in to an existing market with yet another internet café or computer shop? In a saturated marketplace where you feel your ideas will give you a competitive edge then it might pay to open up right in the heart of wherever it is all of these businesses operate. Good luck and I hope your business plan is successful.
On the other hand, opening a new business has some advantages and disadvantages, one being getting them through your door. Of course you wouldn’t start a business without doing the market research to make sure there is a demand for your stuff in the area you plan to peddle it, right? Remember what my old sergeant told me about time spent in reconnaissance never being wasted? That means market research in the business context.
Once you do set up and start to make some money, don’t be at all surprised by the sudden appearance of copy cat shops. It is only a matter of time unless you have something so expensive to start up and so unique or difficult to operate it is too hard to copy. If you do then I doubt it will work there anyway.
Have you ever noticed at the markets how all the fruit and vegetable stalls are in one place and their display is identical to the store next to them? All the meat sellers and fish mongers all in the same place and all looking like the next one? The grocery stalls and the hardware stalls all looking like the same window dresser did the set up. I have seen this in Indonesia, Thailand, China and the Philippines as well as Laos, Burma and Cambodia.
Some might say this is so that everybody has an equal chance of making a buck, but I don’t think so. I think it is the Asian mindset, particularly in the Philippines where being part of the group and group harmony, or Pakikisama are so important, even when in competition with each other. Nobody wants to rock the boat, make themselves seem more important than the other or do it differently in case it fails. One thing I do know is that very often the stalls are owned by the same person, rented out to the vendors on a daily or weekly basis. Any thought of initiative or individualism is not going to happen.
If you are going to run a simple business aimed at C and D class Filipinos, perhaps something for the wife’s family to run then leave it well alone. Let them do it the Filipino way and keep the fancy western retailing ideas to yourself. They will not be comfortable doing it any differently and it would only give them grief amongst their peers.