As the world begins to enter the Asian Century, Philippine businesses find themselves in the middle of a major shift; one that will see them pursuing intra-Asia and intra-Asean trade opportunities.
There is certainly a lot to be optimistic about—the World Trade Organization (WTO) noted that as of 2013, intra-Asia exports accounted for over 53.3 percent of Asia’s total exports and 16.8 percent of global merchandise exports.
The WTO also pegged the total value of intra-Asia trade at $3 trillion, a number that can only be expected to grow as the region matures.
Currently, only three of the Philippines’ top 10 trading partners are located in Southeast Asia—Singapore accounting for 7.1 percent, Thailand 4.6 percent, and Malaysia 3.4 percent of total exports, respectively.
The removal of trade barriers will allow the Philippines to strengthen and deepen its relationship with Singapore, Thailand, and Malaysia, while encouraging Philippine businesses to venture into untapped Southeast Asian markets.
With the electronics, automotive, and food manufacturing industries consolidating production, an integrated market that can offer multiple manufacturing hubs will attract investors looking for a well-organized regional supply chain and production network.
Potential investors can also leverage economic blocs that Asean is a part of, which will help them save on costs and get their product out to major Asian markets at the same time.
Manufacturing
There is great opportunity for the Philippines to realize its potential as one of Asean’s major manufacturing hubs; alongside Thailand, Vietnam, and Indonesia. Some factors that make the Philippines appealing to prospective investors include: a large, English-speaking labor pool; rising domestic demand; proximity to fast-growing markets in Asia; fiscal incentives, particularly for priority sub-sectors such as chemicals, four-wheel motor vehicles assembly, and engineered products; and free trade agreements with large economies such as the United States, Japan, China, and South Korea.
Import tariff rates for some of the most common Philippine exports, such as chemicals, electronic products, and machinery and transport equipment have also been reduced to between 0-5 percent, which makes sourcing, production, and delivery more viable for businesses.
Rise of e-commerce
Another opportunity that Philippine businesses can take advantage of is the growth of e-commerce.
With smartphone usage on the rise and telecommunication companies improving access to the Internet, more Filipinos can now enjoy the benefits of being online, from connecting with friends and family to staying informed to being able to set up their own business.
Filipinos have also embraced e-commerce platforms such as Lazada (which has attracted 18 million visitors and has around 1,600 sellers in the Philippines) and Zalora (which attracts a daily average of 150,000 visitors from the Philippines), turning the country into one of the most promising e-commerce markets in Southeast Asia.
This increase in connectivity has helped fuel our local start-up culture, which has given birth to various products, services, and applications, such as Cash Cash Pinoy, PayrollHero, ZAP, and Xurpas, that support online commerce.
Smaller enterprises
The Philippines stands to gain a lot by helping its small and medium enterprises (SMEs)—which account for 99 percent of businesses locally—find new markets within Asean and Asia.
Data from the Department of Trade and Industry (DTI) show that as of 2012, our SMEs have generated nearly five million jobs, making them a crucial cog in our economy.
For the Philippines to benefit from the growth brought about by intra-Asian and intra-Asean trade, priority will need to be given to the advancement of offline-roads, ports and harbors-and online infrastructure to facilitate the seamless flow of goods, services, payments and data.
This will be critical in selling the country as a potential destination for manufacturers, boosting e-commerce growth, and turning Asean’s vision of a more connected region into reality.
The Philippines will also need to communicate its selling proposition more clearly, to differentiate itself from the rest of Asean. Are we a low-cost alternative to China or a manufacturer of customized, bespoke items? Can manufacturers source, assemble, and export from the Philippines?
Our industry road maps and investment priorities plan can help define what we can offer and what role we can play in the Asean supply chain and production network.
The country will also need to prepare SMEs for new customers and business avenues, improve the quality of their products and services to be on par with, if not better than, international standards, and educate SMEs about Asian and Asean markets, to be able to take advantage of the integration.
At UPS, we recognize the value of intra-Asia and intra-Asean trade and have invested in enhancements to bolster geographical reach and improve transit times.
Transit times
We recently accelerated intra-Asia transit times by up to one full day across 29 trade lanes connecting 41 markets, which would allow intra-Asia and Asia-US shipments to reach their destinations within 24 hours, and Asia-Europe shipments reaching Europe within 48 hours.
We also deepened and expanded our geographical reach in four markets, including the Philippines.
Through strategic partnerships, UPS added 185 new postal codes country-wide, and improved transit times for deliveries to over 70 percent of Philippine postal codes, ensuring that local businesses will enjoy greater reach and operate more efficiently. In Batangas, our customers also benefit from an extended package cut-off time by 120 minutes to 4:30 p.m., giving them greater flexibility to finalize orders.
UPS has long been in the business of enabling commerce, and recognize the importance of fostering a business environment that is sustainable and encourages inclusive growth.
Improving the accessibility to the right resources and tools will enable SMEs to fulfill their potential, and adapt to the changing economic climate.
As such, together with our partners, the US Agency for International Development, US- Asean Business Council and other like-minded multinational companies, we conduct capacity-building workshops to help SMEs in the Asean region to better equip SMEs to participate and move up the regional and global supply chains.
We conducted the Philippines’ first ‘Supply Chain Readiness’ workshop in Cebu earlier this year, attracting 300 representatives from business and government.
The Asian Century imagines a region sustaining growth and escaping the middle income trap over the next 40 years, eventually contributing to half of the world’s gross domestic product.
This growth will be led by China and India, followed by Indonesia, Japan, Republic of Korea, Thailand, and Malaysia.
As the world’s second fastest-growing economy, the Philippines can be part of the engine that drives Asia’s growth.
For the country to reap the benefits of an interconnected, growing Asia, we will need to prepare our businesses, our cities, and our people to compete at a high level and to deliver consistently.
This will position the Philippines as an economy ready for the global stage. (The author is Managing Director of UPS Philippines).