Philippines Country Sourcing Book

Country Sourcing Event Global Sourcing FASM 420 Professor Canepa Sara Spicer

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The Philippines have gone through a complete face-lift since the 1990’s. Including a fall in economy, several natural disasters, and unrest in social and political environments. These strengths towards the more improved Philippines is the economy is withstanding the downturn in the global economy in the most recent years to lower dependence on exports than most other Asian countries, strong domestic consumption. There is a large, low-cost labor power that is generally fluent in English. There have been good records of economic managers managing the country’s external debt. The current government has succeeded in portraying themselves as being cleaner than the previous governments. With six medium to very large size ports, there is room to continue successful imports and exports within the country.

The Philippines is a very relationship based country, so building on relationships with other countries is crucial to them. Not just building relationships with companies, but with the people that work for them.

Manufacturing apparel and textiles is a key factor to their overall manufacturing success, but not the largest contributor. Please continue to read on about the Philippines and how they can help benefit you, your company and the overall success of your production process.

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country stability Social Traits / Values + Customs

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The Filipino culture is really based around family. Family is the center of the social structure and includes the nuclear family as well as extended family.

Considering godparents, sponsors and close family friends as family is also very important in the Philippines (Philippines – Language, Culture, Customs and Etiquette). The median age range for the Filipino people is 23.5 years old. The country has a whole has a population of 107,668,231 as of July 2014 and a growth of 1.81% as of 2014.

Language + Education

The people of the Philippines are considered the Filipino nationality. Many ethnic groups reside there including Tagalog, Cebuano, Ilocano, Bisaya/Binisaya, Hiligaynon Ilonggo, Bikol, Waray and others. Religions within these ethnic groups include Catholics, Muslims, Evangelic, and Christians as well as unspecified religions. Languages that accompany these ethnicities are dominantly Filipino and English (Philippines – Language, Culture, Customs and Etiquette). The general stages of schooling that Filipinos transcend through consist of four stages: pre-primary level (nursery and kindergarten); six years of primary education; ending with four years of second education.

Metro Manila has a high literacy rate of 96% with student population of 2,351,944 (Educational Profile of the Philippines).

geographic Traits /

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Size + Natural Resources

The Philippines as a whole has a population of 107,668,231 as of July 2014 and a growth of 1.81% as of 2014 (Philippines – Language, Culture, Customs and Etiquette). They are located in Southeast Asia, archipelago between the Philippine Sea and the South China Sea, east of Vietnam. The natural resources they offer are timber, petroleum, nickel, cobalt, silver, salt and copper (Geography). Their climate is considered Tropical Marine with variations of northeast monsoons from November to April and southwest monsoons from May to October.

Transportation, Major Waterways + Ports

In the Philippines there are six medium to large sized ports where international freight can discharge. They are Port of Davao, Port of Cebu, Port of Iloilo, Port of Batangas, Port of Subic Bay and the largest one, Port of Manila. Other means of transportation throughout the Philippines are airports, heliports, railways, roadways and waterways. There are 247 airports in the Philippines, 89 with paved runways and 158 with unpaved runways. There are 2 heliports in the country as well as 995 km of railways. There are a total of 213,151 km roadways; 54,481 km of them are paved, 158,670 km are unpaved (World Factbook: Philippines). When it comes to waterways, the International Maritime Bureau states that the territorial and offshore waters in the South China Sea has a high risk for piracy and armed robbery against ships. They’re dealing with problems where commercial vessels have been attacked and hijacked. Hijacked vessels are often disguised and cargo is diverted to ports to East Asia. But these numbers have gradually gone down in recent years.

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Political Traits /

Government Structure

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The Republic of the Philippines has an executive president who is elected for a six-year term by universal mandate and then appoints a cabinet. The head of state and government is President Benigno “Noynoy” Aqunio. The presidential elections were held in May 2010.

Noynoy Aquino took 42% of the votes, while defeating eight other potential candidates (Euromonitor). It was during sentimental timing for Noynoy as well as the Filipino people as previous President and Noynoy’s mother; Corazon Aquino had just passed away.

Many say this is the reason for Aquino’s poll victory. Noynoy promised to bring “good government and to eliminate corruption, and that the nation’s economic affairs could be straightened up”. The country can agree that his term has improved the economy, while his weaknesses include raises in food, energy, and delay in infrastructure improvements (President Noynoy Aquino: An Assessment in Midstream).

International Issues

The Philippines claim the Malaysian territory of Sabah, which, was unlawfully surrendered to the new Malaysian state by Brunei. The dispute has been quiet since the late 1970s. The Philippines also claims the Spartly Islands in the South China Sea, where oil prospecting has been in progress (Euromonitor).

Stability + Risks

According to a report, in March 2014, the government signed a comprehensive peace agreement with the Bangsamoro, or Moro nation.

The agreement is a plan to establish stability in Muslim areas of Mindanao.

The army is also fighting the Abu Sayyaf Jihadist group and other Muslims elsewhere in the country. Peace talks have been stalled for several years.

Also in 2014, in July the Supreme Court declared illegal a US $3.3 billion economic stimulus fund that the president formed in 2011 from budget savings. The decision is slowing public spending and has hurt Aquino’s reputation and is overall upsetting the Philippines reputation (Euromonitor).

Economic Traits / Economic Structure + Overview

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Growth in the Philippine economy slowed down during the Great Recession when both exports and inflows fell. A solid recovery took place in 2010 but the pace of growth alleviated slightly in 2011 owing to a fall in semiconductor exports and a brief drop in public investment. In 2012, real GDP grew by 6.8% as resilient investment, mostly in construction, and vigorous consumption drove the economy. In 2013, GDP growth was 7.2% despite a major earthquake and aftermath of Super Typhoon Yolanda. The economy was driven by strong gains in consumption and services, and supported by investment in manufacturing. In 2014, the pace of growth dipped to 6.1% (Euromonitor).

Major Industries

The Philippines is the world’s largest importer of rice, adding to how agriculture employs 32.8% of the workforce. In 2013, Typhoon Yolanda destroyed almost one million metric tons of the wet-season harvest in November 2013. Poor weather is always a determining factor when considering how the market will do that year. Manufacturing is the next highest industry to the Philippines. It accounts for 20.3% of GDP and employs 8.6% of the workforce. The manufacturing output rose by 5.8% in 2014 (Euromonitor).

Financial Well-Being

The Philippine Peso is the currency of the Philippines country.

The currency rankings show that the most popular exchange rate is between the Philippines and the U.S. When it comes to the financial well being of the people in the Philippines, only 18 percent saw themselves as “thriving financially according to the Philippine Star. The rest of the population said they are “struggling” or “suffering” in terms of economic security.

The ones that say they are struggling are living rural or urban areas of the country. A study stated, “Notably, an usually high proportion of employed Filipinos, 34 percent are suffering in financial well-being. This is consistent with the country’s high underemployment rate, which reached 19 percent in 2013”. So what should the government be doing? Researchers state that while economic awareness in the quickly evolving Philippines continues to be low, the Philippine government has been aiming to have a “more inclusive” growth. Government has the potential to attain inclusive economic growth in part by “improving the country’s education system and increasing the focus on vocational and technical education”. The Philippines should exploit on the populations high sense of purpose to improve financial well being and address the issues that are bring the financial state of the country down (8 in 10 Filipinos “struggling, suffering” Financially) .

Source: Philippine Star

HOW TO CONDUCT BUSINESS

The Philippines culture differs greatly from western culture and business. In order to properly conduct business, there is certain etiquette to consider. In initial meeting, it must be considered that Filipinos thrive on interpersonal relationships and having strong communication. When meeting to conduct business, it is very wise to be introduced by a third party. It is vital to network and build up a faction of business connections you can call on for assistance in the future. Business relationships are personal relationships to the people in the Philippines. This means there may be potential for you to be called on to do favors for colleagues, and they will fully expect you to ask them for favors in return.

Once a relationship has been developed it is with you personally, not necessarily with the company you are representing. Thus, if you leave the company, your replacement

will need to build their own relationship, but you keep your personal one with them. Presenting the proper im age will facilitate building business relationships. Dress conservatively and well at all times.

When it comes to dress etiquette for professional reasons, business is attire is that conservative look the Philippine people are looking for. Men should wear a dark colored, conservative business suit, at minimum, for the initial meeting. Women should wear a conservative suit, a skirt and blouse, or a dress. Appearances matter and visitors should dress well to conduct good business with Filipinos.

Business meeting etiquette and business negotiation are very important as well and should be taken seriously.

Appointments are required and should be made 3 to 4 weeks in advance. It is always a good idea just to confirm the appoint days prior, just in case changes were made. Avoid scheduling meetings the week before Easter. Punctuality is something that is expected by Filipinos. For the most part, your colleagues will be punctual as well. Face-to-face meetings are preferred and show better intentions rather than an email or phone call. While being meetings, avoid making exaggerated claims, always accept any offer of food and drink and it is important to remain for the period of the social conversations at the end of the meeting rather than leaving immediately after the meeting.

Lastly when it comes to making negotiations, it is possible that you may never actually meet the decision maker, This is because decisions are made at the top levels of the company.

Filipinos do business with people more than they do with companies, as mentioned early with personal relationships. If you change representatives during negotiations, you may have to start over. Decisions are often reached on the basis of feelings rather than facts, which is why it is imperative to develop a broad network of personal relationships (Philippines - Language, Culture, Customs and Etiquette).

LEAD TIME

Environmental Factors

The Philippines is 300,000 square miles of beautiful land followed by 1,830 square miles of water, which has its up and downs when it comes to manufacturing and shipping. As the Philippines are considered a tropical marine, it comes with all of the environmental factors of natural hazards. Typhoon belts of around five to six cyclonic storms happen each year (refer to the aftereffects of typhoon Yolanda). Other potential disasters include landslides, active volcanoes, destructive earthquakes and tsunamis.

Volcano, Taal, has shown unrest recently, which may result in an eruption in the near future. Taal has been studied by the International Association of Volcanology and Chemistry of the Earth’s Interior, due to its explosive history and close proximity to human populations. Other active volcanoes include, Biliran, Babuyan Claro, Bulusan, Camiguin, Camiguin de Babuyanes, Didicas, Iraya, Jolo, Kanlaon, Makaturing, Musuan, Parker, and Pinatubo Ragang. More current issues in the environment which may affect lead-time include uncontrolled deforestation especially in watershed areas. Soil erosion, and air and water pollution in major urban centers is also a major problem that could begin to affect the way shipment is brought in and out of the Philippines. Although the Philippines is a beautiful archipelago made up of 7,107 islands, there are almost too many risks when it comes to natural disasters that will affect water transportation on the Southeast’s Asian water bodies that surround the Philippines; the South China Sea, Philippine Sea, Sulu Sea, Celebes Sea and Luzon Strait (Geography WorldFactbook).

Holidays

January 1:New Year’s Day January 2: Additional special non-working day February 19: Chinese New Year February 25: EDSA Revolution Anniversary April 2: Maundy Thursday April 3: Good Friday April 4: Black Saturday April 9: Araw ng Kagitingan May 1: Labor Day June 12: Independence Day August 21: Ninoy Aquino Day August 31: National Heroes Day November 1: All Saints Day November 30: Bonifacio Day December 24: Additional special non-working December 25: Christmas Day December 30: Rizal Day December 31: Last day of the year

STATE OF APPAREL + TEXTILE INDUSTRY The Industry

The apparel industry has been among the world’s largest, and being the largest producer in developing countries. In the Philippines, apparel and manufacturing industry started in the late 1950s as a cottage industry that took over home sewing, dressmaking and tailoring undertakings. The industry in the Philippines has been primarily focused on their efforts to increase exports to the United States more frequently. In 1995, the WTO began a 10-year phase-out of the Multi-Fiber Agreement which created quotas and tariffs on apparel and textiles imported into the U.S., Canada, and EU. This allowed countries to produce huge volumes at lower costs, affecting smaller producing companies like the Philippines. There are plenty of problems in the industry as a whole; nonetheless, it will take effort from all stakeholders, industry associations, government agencies and especially from the garment enterprises themselves to find a final, successful solution (The Tangled State of the Philippine Garment Industry).

Cost in Exports

The aftermath of the WTO phase-out led to a steady decline in garment and textile exports in the Philippines. It went from a volume of US $1.9 billion in 2006, exports declined to US $1.2 billion by 2010.

But has seen growth since this decline, reaching almost US $2 billion in 2012. Today, it is considered a key sector that can help drive the country’s export growth (The Tangled State of the Philippine Garment Industry).

Outcome The Philippine textile and apparel industry has lacked a clear industry map according to several sources, and without these facts and numbers, it is difficult for the government to target what areas in the industry really need the most support and focus. They have rolled out the Philippine Export Development Plan in 2013, a map that contains a database of complete and up-to-date industry information that will help the government analyze and execute programs to support the industry (The Philippines: Textile And Apparel Industry On The Mend).

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Currently, the only countries that the Philippines can entry duty-free are EU, Hong Kong, China, Australia and New Zealand, India, People’s Republic of China, Japan, and Korea. Although the U.S. is not on there, the Philippines does meet regularly with the U.S. under the support of a Trade and Investment Framework Agreement (TIFA), signed in 1989 (Philippines | United States Trade Representative). In 1995, the Philippines joined the World Trade Organization, which resulted in a more reforms being pursued by the Philippines, resulting in a more open, competitive economy which was able to withstand relatively unscathed the Asian financial crisis (Philippines | United States Trade Representative).

SUPPLIER LIST Daegyoung Apparel Inc.

Unit 5A-5D Gabriel Building Block 23, Phase 4 Rosario, Philippines 4106 Tel: +63 46 437 1091 Notable Clients: Kohl’s Specialties/Capabilities: Apparel and Swimwear Capacity: up to 2,395,127kg of total volume sent Travel Time to Port of Manila: 1 hour 1 minute

Yuenthai Phils Inc. PIPC Building, First Avenue Extension, 6th Street, Mactan Economic Zone 1, Lapu-Lapu City, Cebu Philippines 6015 Tel: +63 323409434 Notable Clients: Adidas Industrial, Adidas Latin America, Adidas Canada Specialties/Capabilities: Footwear Capacity: up to 98,150kg of total volume sent Travel Time to Port of Manila: 21 minutes

L&T International Group Philippines, Inc. Website: http://www2.luenthai.com 7500 A. Bonifacio Avenue, Corner J. Tinsay Street, Clarkfield, Angeles, Pampanga, Philippines Tel: +63 45 599 2256 Fax: +63 45 599 3382 Notable Clients: Uniqlo, Liz Claiborne Specialties/Capabilities: Leather Goods and Accessories Capacity: up to 7,164,583kg of total volume sent Travel Time to Port of Subic Bay: 1 hour 4 minutes

Marquee Mills Mfg Inc. Bldg 2 Dampol 2nd B Pulilan Bulacan Philippines Fax: +63 6327 160171 Notable Clients: Lauren by Ralph Lauren, Polo Ralph Lauren Specialties/Capabilities: Leather Goods and Accessories Capacity: up to 757,090kg of total volume sent Travel Time to Port of Manila: 38 minutes

Superl Philippines Inc. Angeles Industrial Park Inc. Special Eco Zone Brgy Calibubut Ph 2001 Pampanga 63 Tel: 454580163 Ext. 63 45458 01 Notable Clients: Kate Spade, Michael Kors, Fifth & Pacific Co. Inc. Specialties/Capabilities: Leather Goods and Accessories Capacity: up to 341,351kg of total volume sent Travel Time to Port of Subic Bay: 1 hour 14 minutes

Shipping Companies: Cosco Zim Cost to Export: $755 (U.S. $) # of Documents: 6 Time to Export: 24 days

Philippines > Los Angeles

TRAnsportation The Philippines, being located in Southeast Asia, is high at risk for monsoons and typhoons. This is definitely something to be wary about when trying to export shipment back to the United States for the buyers. Two companies that are willing to export for the Philippines are Cosco and Zim. Both very well known freight companies around the world. These international freight companies comply with the Philippines Ports regulations as well as the United States, Savannah, Georgia Ports regulations. It costs $755 in U.S. dollars to transport a full 40ft container to a major port in the U.S., such as Savannah.

Investment RISKS

Frequent natural disasters

Investment BENEFITS

Growth in textile and apparel industry

No FTA with U.S.A.

Exporting more into the U.S.

Unstable financial state (citizens)

Strong relationship with U.S.

Low education

Several international ports Recovery in Philippine economy High quality workers Higher education levels English speaking workers Continually improving infrastructure Very loyal business culture Member of WTO

WORKS CITED

“Country Fact Sheet: Philippines.” Business Source Premier. Bureau of East Asian and Pacific Affairs, 5 Feb. 2015. Web. 4 May 2015.

Diola, Camille. "8 in 10 Filipinos “struggling, Suffering” Financially." PhilStar. The Philippine Star, 25 Mar. 2015. Web. 9 May 2015.

Florido, Alethea Mackenzie. "EDUCATIONAL PROFILE OF THE PHILIPPINES." BEST PRACTICES IN FILIPINO SCHOOLS AND CLASSROOMS (n.d.): n. pag. University of North Carolina at Chapel Hill. Web. 6 May 2015.

"Free Trade Agreements: Philippines." Asia Regional Integration Center. Asian Development Bank, n.d. Web. 26 Apr. 2015.

"Geography." World Factbook Philippines Central Intelligence Agency, n.d. Web. 29 Apr. 2015.

"List of National Holidays for 2015." Official Gazette. Philippines.Gov, 23 July 2014.

Web. 06 May 2015.

Ong, John C. "The Tangled State of the Philippine Garment Industry." SVG & Co. Philippines. SVG & Co., 1 Oct. 2012. Web. 9 May 2015.

"Philippines: Country Profile." Euromonitor. Passport, 27 Feb. 2015. Web. 2 May 2015.

"Philippines - Language, Culture, Customs and Etiquette." Philippines. Kwintessential, n.d. Web. 04 May 2015.

"Philippines: Risk Assessment." Global Edge. Coface, Oct. 2014. Web. 4 May 2015.

"Philippines | United States Trade Representative." Philippines | United States Trade Representative. Office of the United States Trade Representative, 2 May 2014.

Web. 26 Apr. 2015.

Sicat, Gerardo P. "President Noynoy Aquino: An Assessment in Midstream."

Philstar.com. Crossroads, 18 June 2014. Web. 06 May 2015.

Thomasson, Sarah C. "The Philippines: Textile And Apparel Industry On The Mend."

Textile World Asia. N.p., Mar. 2013. Web. 9 May 2015.

"World Factbook: Philippines." Central Intelligence Agency. Central Intelligence Agency, 21 Apr. 2015. Web. 26 Apr. 2015.