The U.S. Presence in the Philippines
July 1997

A version of this article appeared as "Growing Philippines Lures U.S. Investors," Business Forum, Green Bay Press-Gazette, July 5, 1997.

In a region accustomed to blistering economic growth, the Philippines is the odd man out. The depredations of the Marcos regime in the 70s and 80s left the country tottering on the brink of disaster. In 1986, democracy was restored but with uncertain prospects. President Corazon Aquino survived numerous coup attempts and the resulting political instability kept foreign investors at bay. The economy limped along.

It was only in the 90s, with the election of the current President, Fidel Ramos, that things started to change. Economic growth picked up, foreign investment started to pour in and trade began to boom. As households' incomes rose, so did their appetite for goods. Accordingly, sales of appliances, houses and cars grew along with the numbers of restaurants, malls and casinos.

Today Manila is a victim of its own success: with the meteoric rise in car ownership, rush-hour traffic keeps office-goers snarled up for hours. To combat this, the Ramos government is ploughing billions into infrastructure development - roads, highways, light-rail transit. In view of the large sums involved, foreign investment is being assiduously courted.

The automobile industry is dominated by the Japanese carmakers. Toyota Corollas, Honda Civics and Mitsubishi Lancers crowd the streets. The government's policy of lowering tariffs on imports has made car ownership - once a distant dream - a reality for m yriad middle-class Filipinos. Rising incomes have even created a demand for luxury cars - a demand met by imports of Mercedes-Benzes, BMWs and Volvos. In a sign that tastes are increasingly becoming homogenous across countries, sport-utility vehicles are emerging as a fast-growing segment, and this is where Ford and General Motors are beginning to make their mark.

General Motors is also establishing a strong manufacturing presence in South-East Asia. Since the region is attracting dollops of foreign investment, occasionally the news of new ventures gets corrupted by rumors. Recently the newspapers reported that GM had decided to set up a manufacturing plant in the Philippines. This breathless report was followed a few days later by a correction: er, well, GM had made no such decision; in fact they were going to set up a plant in nearby Thailand.

As it turns out, GM may invest in the Philippines after all. They are negotiating with the government the terms of the investment - notably regarding the extent of the "local content" (i.e. locally made parts) in their automobiles.

Although the U.S. is not a big player in the automobile market, its presence in others sectors of the economy is unmistakable. Turn on your television set, and you would be forgiven for thinking you were back in the United States. David Letterman, CNN, ABC News, MTV, Baywatch, soaps - they all vie for attention. What about infomercials, you ask? Rest assured: Philippine television also brings you the latest in exercise machines that promise to contort your body into unnatural positions and gasoline addi tives that assure you of mind-boggling improvements to your gas mileage. Yes, American television has truly gone global.

With American movie studios now reaping a large portion of their profits from overseas sales, so has Hollywood. Stallone and Harrison Ford are household names here, at least in households with teenagers. Since English is widely understood in the urban areas, the Philippines provides a ready market for Hollywood fare.

Talking of entertainment, the NBA is hugely popular here. For the first time, a Philippine network was allowed to broadcast a live commentary from the venue of the NBA Finals this year. This was noted with some pride by the network, and they did a fine job too of the coverage. The commentators were steeped in NBA lore, and their interviews (of players and officials), done masterfully, invariably ended with a request to "say something to the Filipino fans back home."

U.S. restaurants have made deep inroads here. And it's not only Manila, but also the provinces, that are dotted with KFCs, McDonalds, Pizza Huts and Dunkin' Donuts. Interestingly, the entry of these behemoth multinational corporations has not subdued loc al competition: indeed, their presence has spurred local restaurant chains to improve their own service and quality. A chain by the name of Jollibee's adopted the strategy of locating its restaurants adjacent to McDonalds and offering comparable fare at s lightly-lower prices. It's a strategy that paid off handsomely; Jollibee's has now gone multinational with operations in other Asian countries.

Another home-grown multinational is San Miguel. With its ubiquitous advertisements, San Miguel is the dominant beer producer in the Philippines, and thus far has managed to keep Budweiser at bay. There is another American contender in the market - Colt 4 5 which, if one goes by their television commercials, is "America's premium strong beer."

The American influence is pervasive in the malls. A recent development, malls have become magnets for families seeking to spend time together in air-conditioned comfort. Visit any mall on a weekend, and you will find yourself jostling thousands of other mall-visitors. For the inveterate shopper, the malls offer a dizzying array of stores, restaurants and cinema theaters. Some go even further. To attract kids of all ages, they come equipped with skating rinks, video game parlors - and Bingo.

The stores themselves are of diverse origins. Certainly, there are the local merchants and department stores. And then, by their side, you see shops of foreign provenance - Guess, Levi's, Van Heusen, and Marks and Spencer. Once again, the signs of growing prosperity are evident in the choices of goods that are now available - and affordable - to the middle class.

The rising affluence of the middle class is a remarkable development in countries like the Philippines. For long they have been deprived of opportunities under state-dominated economies; now with the decline of government intervention in economic activity and the bristling emergence of the private sector, economic enterprise is at last being unleashed bringing with it a plethora of employment and entrepreneurial opportunities. The benefits of less-constricted international trade and foreign investment no w percolate down to the masses in the form of high-quality goods at competitive prices. Rising incomes have propelled millions of consumers to within reach of what was once considered unattainable - a shot at the good life.

So what exactly is it that lures American investors to the Philippines? The prospects of a rapidly emerging market, an educated workforce trained in English, an increasingly laissez-faire economy, and its position as a gateway to one of the most dynamic regions in the world. Yet at the same time, there are potential shortcomings too that no prudent investor can afford to overlook. For example: The Presidential elections next year will engender some uncertainty about the pace of economic liberalization; g rowing income inequality can lead to calls for greater government involvement; untoward developments in the region (e.g., a meltdown in the Thai stock market or a belligerent act by China) will have adverse effects on the domestic economy.

For now, however, the Philippine economy is chugging along robustly. A once-decimated stock market is showing signs of life. There is optimism in the air. And if things go bad, one could always turn to a glass of Colt 45....

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