Japan aircon maker: ‘Changing’ investment climate forces production out of PH

by Roy Stephen C. Canivel, Mar 3, 2018

One of the country’s leading firms in the airconditioning industry could not convince its Japanese parent company to put up a production hub in the Philippines, partly because investors feel they are “not protected” under the constantly changing investment climate.

At the sidelines of a press conference on Friday, top officials of Daikin Airconditioning Philippines Inc. complained about the lack of long term continuity in the country’s policies, noting that investors want to see the rules that are sustained beyond one administration.

Partly because of this, they said their parent company, Daikin Industries, Ltd., had decided to open a production hub in Vietnam in order to help meet the growing global demand for its products, instead of putting it up here in the Philippines.

Daikin’s operations in Vietnam sell a million units annually, around ten times larger than its sales here in the Philippines, wherein only less than a hundred thousand units are sold in a year.

However, in spite of the sales difference, the country could have hosted the production facility if there were “attractive” tax packages and a sense of continuity in its policies, according to Bart Roa, deputy division manager under the company’s sales operations.

“Even though our unit sales are not big, if our [tax] packages are very attractive for investors, of course, they would choose the Philippines as their production hub. But that’s not the case. Here, they’re scared because they’re not protected,” he said in Filipino.

The complaint did not necessarily center around the Duterte administration, as officials noted that the policy changes from one president to another. Previous administrations were also guilty of this.

However, this comes as the Duterte administration is introducing a series of tax packages, including one which would rationalize the tax incentives that companies like Daikin could have benefited from.

If the company set up in an economic zone, it would eventually only pay five percent gross income earned (GIE) tax in lieu of all taxes, a perk which essentially has no expiration date. This is under the currently available tax incentives.

However, according to the proposed second tax package from the Department of Finance, the perk would be replaced with a reduced corporate income tax rate of 15 percent based on net taxable income This 15 percent tax rate could be continued for another five years on a per-project basis.

Still bullish years forward

Daikin is currently the world’s bestselling airconditioning company, but its local branch is not as popular here in the Philippines, especially since majority of households still patronize window-type aircon units. Daikin only sells split-type aircon units.

This comes as Daikin Philippines expects to sell P3.3 billion worth of aircon units once the current fiscal year ends this March, according to Jed Caburian, division manager under the company’s sales operations. He attributed it partly to brand awareness.

The company’s airconditioning units are not present in major appliance centers, relying instead on its vast dealership to reach to consumers. Caburian said that its network grew from 43 dealers in 2011 to more than 300 currently.

“We’re gaining back the brand awareness of Daikin. We have invested a lot in the past 2 years in brand awareness,” he said.

Should the target be reached, this means that the company’s sales would have grown 32 percent from the previous fiscal year, which is consistent to its annual sales growth of at least 30 percent since 2010.

Moving forward, he said the company would grow 40 to 50 percent in terms of worth of sales in the next fiscal year. Currently the third largest market player in both the household and commercial segment, Daikin officials said they could challenge the number one spot within three years. /muf