The Philippines is an archipelago in the western Pacific Ocean, consisting of around 7,641 islands. The country shares maritime borders with Taiwan to the north, Japan to the northeast, Palau to the east and southeast, Indonesia to the south, Malaysia to the southwest, Vietnam to the west, and China to the northwest. Its proximity to major Asian cities offers it a strategic point of entry into the ASEAN market and a gateway to international shipping for European and American companies.
Economic development and Foreign Direct Investment
The Philippines is liberalizing foreign investment laws to enable international companies to invest in the country’s robust economy and leverage its highly skilled labor market.
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The country’s economy grew by 5.7 percent in 2021, surpassing the government’s 5-5.5 percent target range, bringing the Philippines closer to its pre-pandemic 6.6 percent GDP from 2012-2019.
The Philippines’ gross national income per capita was estimated at around USD 3,500 in 2021, below the World Bank’s upper middle-income range of $4,096 to $12,695.
According to reports, Philippine officials expect the country to achieve an upper middle-income status by 2023.
Ease of restrictions increased consumption and improved employment.
Net foreign direct investment (FDI) inflows rebounded after declining for three consecutive years and rose by 54 percent year-on-year to USD 10.5 billion in 2021. The U.S. is among the top investors in the Philippines.
The top two import sources of the Philippines are China and Japan, with 22.7 percent and 9.4 percent import shares, respectively. The United States is the largest export market of the Philippines, with 15.9 percent of the total export value in 2021. It was followed by China, a very close second, which accounted for 15.5 percent.
The Philippines has been named one of the most lucrative markets for foreign direct investment (FDI).
With the twelfth largest population in the world, Filipinos are substantial consumers. Consumer spending in the Philippines reached its all-time high in the fourth quarter of 2018, and spending is predicted to keep increasing. The country has been named the 43rd biggest economy in the world and is a land of promise for domestic and international brands to invest.
A skilled workforce that is fluent in English
The Philippines is known for its high proficiency in English and occupies the second spot for English proficiency in Asia. It ranked 18 out of 99 countries analyzed in the Index as of 2020.
This is a great advantage for international companies entering the market and using local labor.
The Philippines is considered a lucrative host for Foreign Direct Investment. Between 2016 and 2022, the Philippines Central Bank data showed that firms from China and Hong Kong invested USD 1.7 billion in the Philippines, trailing only Japan at USD 2.8 billion but ahead of the USA (USD 1.3 billion).
The country is developing at a healthy growth rate and presents an immense opportunity for entrepreneurs, investors, and Filipino employees.
Many investment opportunities are available for entering the Philippines market, and now may be the best time for foreign brands to explore this emerging market.
Some of the most lucrative industries for FDI in the Philippines include agriculture, manufacturing, tourism, business process outsourcing, energy, and infrastructure development.
There are various entry modes to choose from when investing in the Philippines. Companies entering the country can choose the most suitable one based on their business model and the laws governing each structure.
1. Corporations
A foreign company can establish itself as a corporation by registering a new legal entity with the Securities and Exchange Commission (SEC). In this structure, the owner’s individual assets are separate from the company’s. Corporations can be formed in two ways, a Filipino corporation with a minimum of 60 percent Filipino equity ownership or a foreign-owned domestic corporation with a foreign equity ownership greater than 40 percent. There are important distinctions between the two concerning land ownership and tax-incentive programs. Foreign-owned domestic corporations face the exact tax requirements as local corporations.
The process of setting up a corporation may be a complex one taking an average of 28 days.
2. Branch Office
A branch office is a subsidiary of a foreign company that engages in the activities of its parent company in the Philippines. This is a profit-oriented structure used for business process outsourcing, such as call centers or back offices for multinational firms in the Philippines. These firms are popular in the Philippines due to low wages and many fluent English speakers. Setting up a branch office typically takes three to four weeks from the time of filing with the SEC.
3. Representative Office
A representative office is a liaison between the parent company and clients or partners in the Philippines and is not legally allowed to derive income. On average, setting up a representative office takes about three to four weeks from the date of application.
4. Regional H.Q.
Regional or Area Headquarters (RHQ) and Regional Operating Headquarters (ROHQ) are two types of regional headquarters.
RHQs are non-income generating offices of a foreign enterprise, while ROHQ is an office of a multinational commonly used for back-office operations. The primary purpose of RHQs is to be a communication center for subsidiaries, affiliates, and branches in the Asia Pacific region.
The good news is that growth is seen in Manila’s metro city and other smaller provinces. The country’s improved infrastructure and growing population of consumers are attracting investments, both domestic and foreign, and creating better job opportunities.
The Philippines’ economy is poised for growth, and the investment market is rife with opportunities, which makes it an excellent time to enter the country.
Kadence International helps leading brands make game-changing decisions. From our base in Manila, we can conduct market research across the country. This means we can also be fieldwork partners, helping organizations reach respondents across the Philippines. Also, learn more about how to conduct market research in the Philippines.
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