MORE than half of the Japanese firms polled by the Japan External Trade Organization (Jetro) in the Philippines have expressed continued optimism in the country’s investment prospects, as they intend to pursue their respective expansion plans over the short term despite perceived challenges in the local business and regulatory environments.
Based on the results of Jetro’s 2014 Survey on the International Operations of Japanese Firms, 58.7 percent of those operating in the Philippines were expanding their businesses in the next one to two years.
While this proportion is not the highest among the countries covered in the survey, the Philippines was one of the few that has shown a steady increase from 43 percent in 2011, 48.2 percent in 2012, to 58.1 percent in 2013, said Jetro executive director Tomohiro Ando.
In an interview with the Inquirer, Ando noted that this proportion showed a growing momentum in terms of the interest among Japanese companies, a number of which were being drawn to the Philippines due to the country’s abundant supply of quality labor; stable relationship between management and labor, and the attractive incentive regime and support offered by the Philippine Economic Zone Authority and other agencies.
Despite this optimism, however, Ando pointed out that Japanese firms continue to expect further improvements in the country’s business and regulatory environments. The top five business risks from the viewpoint of Japanese affiliates, according to Ando, were underdevelopment of infrastructure; complicated administrational procedures or approval by government; policy uncertainty; complicated taxation systems; and unstable political and/or social situation.
“Further improvement of infrastructure is eagerly expected even by Japanese firms which are keen in expanding their operation. The proportion of ‘expanding firms’ might have been higher with better infrastructure,” Ando said.
The 2014 Jetro Survey, which was conducted from December 2014 to January 2015, polled 2,995 firms to gauge their interest in business overseas. Of this number, 2,334 were small and medium-sized enterprises (SMEs).
The survey covered topics including trade, overseas and domestic business development policies and business environments in emerging countries.
The results showed that Japanese firms operating in the Philippines have greater appreciation of the investment environment on several counts, compared to their counterparts in the region.
These proportions, Ando said, were “considerably the highest among Asean members and [higher than India].”
For instance, a hefty 70.5 percent of the Japanese firms covered said they had less linguistic or communication problems in the Philippines, the highest among five other countries in Asia—Indonesia, Malaysia, Thailand, Vietnam and India.
Only 6 percent and 5.9 percent of the Japanese companies in Indonesia and Vietnam, respectively could claim the same in their host environments.
The Philippines also secured higher appreciation from Japanese companies compared to the five countries in terms of ease of hiring local staff namely general worker, staff or clerk (42.5 percent) and specialist, engineer or middle managers (13 percent); and in terms of high quality of general workers (17.3 percent) and of specialists and middle managers (12.2 percent).
At least 13.7 percent of the Japanese firms here said the Philippines boasts of high employee retention rates, while 37.4 percent of the companies polled in the country said tax incentives were highly attractive. These proportions are again the highest compared to the five other countries in Asia.
In terms of labor cost meanwhile, the Philippines has remained among the most competitive in the region.
“Industrial development in Asia has brought various challenges and among them, labor cost is still the major concern of the Japanese firms in the region. The Philippines showed a moderate level of wage increase in comparison with most of Asean members, China and India. Likewise, data shows that the Philippines has a more predictable situation or trend [when it comes to wage increases],” Ando added.