Japanese firms favor Philippines least for S.E. Asian expansion

TOKYO (Kyodo) — The Philippines is least-preferred by Japanese firms for their expansion plans in Southeast Asia and they cite inadequate infrastructure as the main risk doing business in the country, a recent Japan External Trade Organization survey shows.

The Philippines lags Thailand, Singapore, Malaysia, Indonesia and Vietnam as the choice of Japanese firms in expansion of sales operations, production, research and development and distribution, according to the JETRO survey conducted late last year among 1,002 Japanese firms.

Of the respondents, 473 said they plan to expand business and their functions overseas for the coming three years or so.

The survey, released this week, showed it was only as a place for a regional headquarters that Malaysia was the respondents’ last choice.

The Philippines tied with Indonesia and Vietnam as the next higher choice.

The respondent companies said inadequate infrastructure, followed by “lack of clustering or development of related industries,” and “underdeveloped legal system/problems with legal operation” are the main issues or risks they find in the Philippines.

The least risk for them was said to be rising labor costs.

Masaharu Oshima, investment adviser of Japan International Cooperation Agency assigned to the Philippines Board of Investments, told Kyodo News on Thursday that while he has yet to find out the questions were asked in the JETRO survey, he thinks the result in the preference of country destinations is relative to the existing number of Japanese companies in already each country.

Refusing to accept the JETRO survey results outright, Oshima said that with only a few more than 1,000 Japanese companies operating in the Philippines as reported by the Japanese Embassy, it is to be expected that only a few of the respondents would choose the Philippines as a site for business expansion.

“This is simple statistics,” he said.

But he agreed with the survey findings as to the risks of doing business in the Philippines, citing bumpy roads, old airport facilities, a quite expensive electricity rate, red tape in the national and local bureaucracies, a few labor problems, a relatively high labor cost and the lack of commitment to execute contracts or agreements.

“The system is there, but execution is the problem. So what is the problem? Central government or local government, their transparency, their leadership, That’s the problem,” Oshima said.

Tax-related risks or issues in the Philippines, meanwhile, are of little concern among Japanese companies, the survey says, but it is uncertain if it is because of the Japan-Philippines Economic Partnership Agreement between the two countries that took effect in December 2008.

According to the survey, 14.6 percent of 287 companies engaged in export with the Philippines use the preferential tariff rates provided by the FTA, and another 11.5 percent are considering doing the same.

Of 84 companies that engage in import with the Philippines, 16.7 percent take advantage of the FTA and 10.7 percent are still considering doing so.

Oshima expressed surprise with the low use of the FTA, saying Japanese companies, especially the export-oriented, even have another option in the Philippines, locating their businesses inside Philippine Export Processing Zones.

“That’s the weakness of this report. They don’t understand the real meaning of JPEPA and PEZA law. The (survey) is asking universal questions. It’s not tailor-made (to each country),” he said.

Nonetheless, Oshima expects the Philippines to continue to get a share of Japanese investment because of its strengths against Thailand, Vietnam, Malaysia and Indonesia, including land availability, labor and electricity costs and the supply of workers.

The country just has to improve the skills of its workers by adding two more years in education, ensure enough supply of electricity, improve the discipline of its people, especially those in government, and improve its infrastructure, he said.

“It’s not excellent, but at least, it’s slowly moving to improve. That’s the key. It’s a good, positive sign,” he said.

Japanese investment in the Philippines in 2010 was around 58 billion pesos ($1.338 million), representing 30 percent of total foreign direct approved investments.

(Mainichi Japan) March 11, 2011