More firms fear worst impact from slowdown

Published by rudy Date posted on January 14, 2009

Local businessmen expect a further drop in exports while profitability and sales of firms will be lower this year as the full effects of the global financial crisis hit the business sector this year.

This was the sentiment expressed by top Filipino businessmen in a survey conducted by the Grant Thornton International Business Report (IBR) 2009, released by audit, tax and advisory firm Punongbayan and Araullo (P&A), a member firm of multinational accountancy and business advisory firm Grant Thornton.

The IBR polled over 7,200 privately-held businesses on their expectations for six economic indicators: Profitability, turnover, exports, selling prices, investment in new buildings, and investment in plant and machinery.

Across all indicators, less local businesses anticipate increases for the coming year, with profitability showing the biggest drop, from 67 percent in 2008 to 33 percent this year.

Those expecting a growth in sales declined from 61 percent last year to 37 percent. Surprisingly, export expectations only dipped 14 percentage points: from 45 percent to 31 percent.

“In the export industry, we expect certain sectors to fare better than others,” pointed out Greg Navarro, P&A managing partner.

“The garments and electronics sectors will definitely suffer as the economies of their major markets contract. But other sectors, like business process outsourcing, wellness, and other service industries are in a good position to remain resilient,” he said.

Garment companies based in economic zones retrenched workers late last year as demand dropped despite the anticipated holiday spending.

Peninsula Fashion International Corp., the eighth biggest exporter in Clark Freeport, retrenched 400 workers, while Limech laid off 541 employees and closed its newest factory.

A year-end forecast released by information communication technology (ICT) research firm XMG sees the Philippines’ semiconductor industry retrenching more workers this year as a result of its decline until the first half of 2009. The semiconductor and electronics industry account for 64 percent of the country’s exports and 34 percent of GDP.

XMG noted that the offshoring industry will remain robust: the Canada-based firm projects it will grow by 24.2 percent through 2010.

Local businesses surveyed in the IBR 2009 also expect fewer opportunities to raise selling prices, with only 39 percent reporting that they expect to increase prices in 2009 compared to 66 percent last year. Thirty percent expect to invest more in new buildings (compared to 49 percent last year), while 36 percent expect to invest in plant and machinery (compared to 55 percent).

“While expectations across these economic indicators are down for Filipino business leaders, it is worth noting that we’re still relatively optimistic compared to our neighbors,” Navarro said. “Thailand, for example, reported a negative balance for turnover, profitability and exports for the second year in a row. Singapore, Hong Kong, Mainland China and Malaysia all registered negative expectations for profitability this year.

“In RP’s case, the BPO industry reported late last year that it is on track to meet its full-year 2008 target of $6.8 billion, and outsourcing firms are continuously hiring workers. And while OFW remittances are expected to slow down this year, dollar remittances will still help fuel consumer spending, as the Bangko Sentral and government policies stimulate the market and encourage local banks to keep lending. So we’re weathering the storm. Local businesses just need to focus on cost-cutting and productivity improvements, take the slack time to train and retrain both management and employees, so that they can emerge on the other side of this crisis stronger, better trained, more innovative, more competitive and more productive.” Navarro added.–Ayen Infante, Daily Tibune

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