Philippines Country report

PHILIPPINES COUNTRY REPORT 2017

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Mengying Zhang FASM 420 Global Sourcing Prof. Donald Levy

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COUNTRY OVERVIEW

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HISTORY & COUNTRY TRAITS

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COUNTRY STABILITY

STATE OF THE AP TEXTILE INDUSTRY T

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TRADE AGREEMENT THE U.S.

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LEAD TIME OF PRODUCTION

BUSINESS CONDUCTION

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RISKS & BENEFI

PPAREL & E TODAY

TS WITH

ITS

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TRANSPORTATION

SHIPPING RESOURCES

MAIN SUPPLIERS

CONTENTS 3

1.COUNTRY OVERVIEW The Philippines, situated in the western Pacific Ocean, is a unitary sovereign state and island country (consists of about 7,641 islands) in Southeast Asia.

The Philippine Government faces threats from several groups, some of which are on the US Government's Foreign Terrorist Organization list. The Philippines also faces increased tension with China over disputed territorial and maritime claims in the South China Sea.

2. HISTORY & COUNTRY TRAITS Location:

Southeastern Asia, archipelago between the Philippine Sea and the South China Sea, east of Vietnam

Geographic Coordinates: 13 00 N, 122 00 E

Government Type: Presidential Republic

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Capital: Manila

Population: 104,256,076

Cultural Factors:

The family is the center of the social structure and people get strength and stability from their family.

Filipinos believe they must live up to the accepted standards of behavior and if they fail to do so they bring shame not only upon themselves, but also upon their family.

If someone is publicly embarrassed, criticized, or does not live up to expectations, they feel shame and lose self-esteem.

Ethnic Composition: Tagalog 28.1% Cebuano 13.1% Ilocano 9% Bisaya/Binisaya 7.6% Hiligaynon Ilonggo 7.5% Bikol 6% Waray 3.4% Other 25.3%

Education Level:

An average Filipino usually spends 10 years in basic education – 6 for primary and 4 for secondary. But with the introduction of K-12 program in 2012, another two years is added to basic education before a student proceeds to college.

Gender Breakdown: 1.01 Male(s)/Female

Median Age:

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Total: 23.4 years Male: 22.9 years Female: 23.8 years

Export Value In 2016ďźŒthe Philippines exported $54.3B, making it the 41st largest exporter in the world. During the last five years the exports of the Philippines have decreased at an annualized rate of -3.92%, from $71.1B in 2011 to $54.3B in 2016. The most recent exports are led by Integrated Circuits which represent 25.1% of the total exports of the Philippines, followed by Computers, which account for 8.24%.

What does the Philippines import? (2016) Total: $80.5B

What does the Philippines export to the United States? (2016) Total: $8.67 B

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Economic Overview Industrial Growth Rate: 8.4% Labor Force: 43.2 million Unemployment Rate: 5.5% Main Industries: Semiconductors and electronics assembly, food and beverage manufacturing, construction, electric/gas/ water supply, chemical products, radio/television/ communications equipment and apparatus, petroleum and fuel, textile and garments, nonmetallic minerals, basic metal industries, transport equipment Budget Revenue: $46.24 billion Inflation Rate: 1.8% Currency Exchange Rate: Philippine pesos (PHP) per US dollar 47.493

Country Religion: Catholic 82.9% (Roman Catholic 80.9%, Aglipayan 2%), Muslim 5%, Evangelical 2.8%, Iglesia ni Kristo 2.3%, other Christian 4.5%, other 1.8%, unspecified 0.6%, none 0.1%

Language: English and Tagalog/Filipino are the two official languages Other languages are Bikol, Cebuano, Hiligaynon (Ilonggo), Ilocano, Kapampangan, Pangasinan, Tagalog, and Waray.

Currency: The Philippine peso

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National Holidays

EC

The economy of P changes due to p growth rate was 1 2013. Philippian G momentum and government has after introducing is moving towards its economy.

The educated w comparatively you good business en reserve is driving growth during 20 Philippine is at Investment) and F country has well d from governmen encourage free tra

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3. COUNTRY STABILITY

(PEST ANALYSIS)

POLITICAL FACTORS Philippines became better these year after years of political turbulence. The newly industrialized nation has already established a good track record as a country favorable to businesses. Under the leadership of President Gloria Arroyo, the present government has taken many steps to get a positive political atmosphere and improve people's lives. In the recent events and political turmoil, Philippian address several significant challenges and risks, such as worst evil of corruption compared to India, China and US leads to unethical business practices. The government was spending less on R&D activities which result in external dependency for new technology and week infrastructure such as railways and road ways is hampering the industrial growth.

CONOMICAL FACTORS

Philippines had made rapid structural political changes of the country. The 1.15% in 2009 and reached to 7.8% in GDP is expected to continue its growth grow to $ 372 billion by 2018. The planned various business investment holistic view of the country. Philippine s globalization and getting benefits from

workforce, huge domestic demand, ung workforce, rich natural resources, nvironment and high foreign exchange g the Philippian economy to sustained 013-2018. With new economy policy tracting more FDI (Foreign Direct FII (Foreign Institutional Investor). The defined investment policies and support nt and industry associations which ade.

The economy of Philippines ranks 47th in the world. A strong positive point for outsourcing is shifting from agriculture towards service industry. It is a member organization to the International Monetary Fund, World Bank, and World Trade Organization as well as the headquarters of the Asian Development Bank. Supported by a population well versed in English, the economic condition is almost ideal for outsourcing as many industries have set up their shops and functioning well.

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SOCIAL FACTORS Philippines is the 12th most populous nation in the world. It constitution recognizes English and Filipino as the official language. The gradual shift from agriculture to the service sector is a big change towards economic development. The Philippines government is pursuing goals that boosting Philippines' economic growth and reduce inequalities. At the same time the government's policies and regulations are implemented as it is important to consider as improving citizens' lives and economic development of Philippines.

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TECHNOLOGICAL FACTORS Philippines has made significant development in the technology field. The country is using latest technology to grow their industry and agriculture. Philippines has a strong IT infrastructure and support. Various IT developments have been introduced so most people have their own cell phone with internet facilities. This technological support forms the very backbone of the now booming outsourcing industry. In addition, over five million mobile phone users also use their phones as virtual wallets, which leads among developing nations in providing financial transactions over cellular networks. The Legal Process Outsourcing (LPO) industry in Philippines is mature. Having already proved its mettle in other services outsourcing models, the future looks bright in Philippines.

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& TEXTILE 4. APPAREL INDUSTRY TODAY

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STRENGTHS

WEAKNESSES

• Availability of low cost and skilled manpower provides competitive advantages to the industry.

• The strengthening of the c u r r e n c y, c o m p a n i e s a r e pressured to adjust export prices.

• Deep labor pool with high English language proficiency.

• The soaring cost of labor.

• The availability of indigenous materials such as Manila hemp, ramie and bamboo.

• Strict adherence to ethical and labor standards of factories in the country.

• Receives ample support from various trade associations.

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• Heavy reliance on imported materials.

• The surging cost of fuel.

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OPPORTUNITIES

THREATS

• Recovery from US market from the global financial slowdown.

• Widespread piracy of local designs and concepts.

• Gaining strong interest in the EU.

• Disinterest to learn handicraft skills among younger generation.

• Seeking to avail the bloc’s Generalized Scheme of Preferences Plus that will allow countries to enjoy further tariff reductions.

• Competition from other developing countries.

• P r o d u c t d e ve l o p m e n t a n d diversification to cater global needs.

• Emerging retail industry and malls provides opportunities for the industry.

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Increasing demand from traditional markets is driving the growth of the garments industry in the Philippines. Exports in recent years have been gradually expanding. The US is expected to remain the single-largest market for locally made apparel over the next few years. The Philippines continues to attract buyers from the US. Gap, Polo Ralph Lauren, Victoria’s Secret, Tommy Hilfiger, Levi’s and Jones New York have been boosting their sourcing activities in the country over the past years. The value of apparel and textile export to the United States in 2016 is $717 million which is 8.3% of total export values.

One of the industry’s strongest suits is the widespread availability of skilled manpower. Workers in the Philippines are also known for their good English literacy. However, the high cost of labor is also as a stumbling block of the industry. Because of the additional manpower expense, suppliers find it difficult to compete with low-priced items from rival supply zones.

The Philippines is seeking to avail the bloc’s Generalized Scheme of Preferences Plus that will allow countries to enjoy further tariff reductions in various product categories, including garments and textiles. The two sides have also started negotiations for a free-trade deal.

The industry is heavily relay on imported materials as close to 80% of the fabric are sourced overseas. It is affected by currency fluctuation, shipping costs and import duties.

Makers typically sources cotton, polyester, rayon, acrylic and satin from mainland China, South Korea, Indonesia and India. But Philippines have availability of indigenous materials such as Manila hemp, ramie and bamboo. Manila hemp is mixed with cotton or polyester to create denim fabric, while ramie is used as an alternative to linen. Apparel made of these fibers becoming popular among overseas buyers because they are perceived as sustainable.

The Confederation of Garment Exporters in the Philippines and Garment Business Association of the Philippines regularly conduct seminars and training to support its members. They also lobby for laws and policies that will benefit the line.

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HTS Code for Products

6104 Women's or girls' suits, ensembles, suittype jackets, blazers, dresses, skirts, divided skirts, trousers, bib and brace overalls, breeches and shorts (other than swimwear), knitted or crocheted.

6404.11 Sports footwear; tennis shoes, basketball shoes, gym shoes, training shoes.

6101 Men's or boys' overcoats, carcoats, capes, cloaks, anoraks (including ski-jackets), windbreakers and similar articles, knitted or crocheted

6103.23.00 Men's or boys' suits, ensembles, suit-type jackets, blazers, trousers, bib and brace overalls, breeches and shorts (other than swimwear), knitted or crocheted:

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5. TRADE AGREEMENTS WITH THE U.S.

The United States meet regularly with the Philippines for bilateral Trade and Investment Framework Agreement (TIFA) since1989, aims to address bilateral issues and coordinate on regional and multilateral issues. Under the TIFA, the United States and the Philippines also have signed agreements on customs administration and trade facilitation protocol (2010), cooperation on stopping illegal transshipments of textiles and apparel (2006), and implementation of minimum access commitments by the Philippines (1998).

Now the Philippines is looking to take its bilateral relations with the US as the Philippines wants to secure a free trade agreement (FTA) with the world’s largest economy. In a statement in July 2017, the Office of the United States Trade Representative (USTR) said officials from the Philippines and the US agreed to work together “to foster free, fair, and balanced trade between them” during the TIFA meeting.

A stronger Philippine-US trade was further reinforced in June 2017, approved the Philippines’ application to expand its current GSP coverage to include travel goods, a move seen expanding the country’s economy by 0.5 percent and creating 70,000 new jobs.

The USTR said bilateral trade in goods between the US and Philippines in 2016 reached $18.2 billion. The Philippines was US’ 31st largest export market for goods last year. Meanwhile, the US was the Philippines third major trading partner, the second biggest export market, and third top import supplier.

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International Ports Port of Manila Philippine Ports Authority, PDO Manila/ Northern Luzon

6. TRANSPORTATION

Port of Subic Bay Subic Bay Metropolitan Authority

Port of Batangas Philippine Ports Authority, PMO Batangas Port of Iloilo Philippine Ports Authority, PMO Iloilo Port of Cebu Port of Davao Philippine Ports Authority, PMO Davao

Shipping Companies

Shipping Estimates Shipping: Shipping Container 40 From: Manila, NCR, Philippines To: Los Angeles, CA, United States Cost: $3564~$4076 Transit Times: 27~32 days

Shipping: Shipping Container 40 From: Manila, NCR, Philippines To: Savannah, GA, United States Cost: $4019~$4851 Transit Times: 36~44 days

7. SHIPPING RESOURCES 17

Beautop Inc. https://beautop.weebly.com/ Address : 9005 Dennison St. City : Meycauayan State : Bulacan Phone : 044-7699472 Email : melissa.ong@beautop.ph Products : Poloshirts, Tshirts, Jogging, Pants, Shorts, Jackets, Hoodies Clients : Converse, Nestle, Kswiss, Arena, Everlast

Eu ro p e a n A p p a re l M a n u fa c t u r i n g Corporation Address : Block 3, Lot 12 Hon. Cruz Street Soldiers Hills Brgy Putatan City : Muntinlupa State : Luzon Phone : +63-2-861 1111 Fax : +63-2-861 2447 Clients : Walmart, Primark, Adidas

The Apparel Corporation (Far East) www.theApparelCorp.com Address : 8888 Marian Road 2 East Service Rd. South Superhighway CitParanaque State : Metro Manila Phone : +63-2-776 1465-45 Fax : +63-2-824 6812 Products : Sleepwear, Lingetie, Bras, Panties

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8. MAIN SUPPLIERS

First Glory Philippines Inc. http://www.firstglory.com/ Address : 3rd Floor, Sudecor Building, MEPZ 1, Gate 2 City : Lapu-lapu City State : Cebu Phone : +63- 32-495-5177Fax Email : info@firstglory.com Clients : J.Crew

CS Garment, Inc. h t t p : / / w w w. c s g a r m e n t . c o m / v 3 / a b o u t . php?link=Company_Profile Address : 1St St Cavite Economic Zone City : Meycauayan Phone : +63-46-437 0417 to 20 Fax : +63-46-437 0421 Clients: Assante Fashions Ltd.

Yuenthai Philippines Inc. Address City State Phone Products Clients

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: 5th Street Cor First Ave Mepz-1 : Lapu-Lapu City : Cebu : +63 2 340 9434 : Shirt, T-Shirt : Adidas

Conditions that may affect lead time of production

Natural Disasters

• Earthquakes • Volcanic eruptions • Typhoons • Cyclones • Other natural disasters The Philippines has suffered from numbers of deadly earthquakes, volcano eruptions, typhoons and other natural disaster. Because its location on the typhoon belt which is a large Pacific Ocean region where many of Earth's volcanic eruptions and earthquakes occur.

The Philippines is the country most exposed to tropical storms in the world. The latest Haiyan typhoon, can generate 10 times as much energy as the Hiroshima atomic bomb. Approximately 19 typhoons enter the Philippines annually and 6~9 of them cause landfall.

Holidays •Festival of the Black Nazarene •Ati-Atihan •Sinulog Festival •Dinagyang Festival •Panagbenga Flower Festival •Moriones Festival •Masskara Festival •Christmas The Philippines is a predominantly Catholic nation so many festivals such as the Mariones Holy Week are related to important events on the religious calendar. Some of festivals reflect more recent Christian beliefs, such as the Ati-Atihan festival which preserves costumes and rituals.

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9. LEAD TIME OF

PRODUCTION

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Culture Insights

The family is the central unit of Philippines society. The family provides suppo through its extended network of aunts, uncles, grandparents, cousins and clo They don't aim to obtain money and other resources for themselves but for the whole. Extended families often working for each other or in the same family com each other and sending money back to family members from the better-paid w many more qualified Filipinos are forced to undertake.

A Filipino will make great efforts to avoid shame that may be caused by a person to their own expectations or those of others. So most people try to control th maintain a sense of social propriety. Criticizing a Filipino in public is the greate Filipinos fearful of failure that's why they often resistant to change or innovation.

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10. BUSINESS CONDUCTION

ort and protection ose family friends. family group as a mpany, sponsoring work overseas that

Business Etiquette Initial greeting follows that greeting the eldest or most important person first, but a handshake with a welcoming smile. You may be invited to use a person’s first name or nickname but it's better to use academic, professional, or honorific titles in the business meetings.

In the Philippines, people prize the educational qualifications, both as marks of status and as gateways to earning money for the wider family or community.

Care should still be taken to build long term relationships based firstly on an introduction by a Filipino known and trusted by the party you wish to meet. Filipinos are very impressed by titles and respect position, so an introduction by someone with status and a title is best.

Once a business relationship has been formed, Filipinos are very loyal and will introduce you to further associates within their network. The principle of mutual obligation means that you may be asked to do favors for such associates, and they will expect you to ask favors from them in return. This will lead to a long-term relationship based on the balance of obligations and on your personal credibility.

Negotiation Style and Customs Filipinos prefer face- to-face meetings than other methods such as the internet, telephone, fax, letter or email. During meetings, avoid making exaggerated claims. Emphasize the benefits your company can offer the Filipino firm but don’t expect any decisions. Given the paternalistic style of management, the decision maker may not even be there. Only the most senior people have authority and responsibility so try to identify who they are and cultivate them if possible.

n failing to live up heir emotions and est insult. It makes .

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11. RISKS & BENEFITS

RISKS

BENEFITS

• Lack of FTA

• International transpotations

• Frequent natural disaster

• Skilled workers

• High labor wages compare to other developing countries

• Development of technology • Increasing export value to the U.S

• Limited raw materials

• English as official language 24

WORK CITED First Glory Philippines Inc., 3rd Floor, Sudecor Building, M.E.P.Z. I, Lapu Lapu City, Cebu, Philippines | Supplier Report - Panjiva. (n.d.).

Retrieved October 30, 2017, from https://cn.panjiva.com/FirstGlory-Philippines-Inc/1658332 Freight Rate Calculator: Shipping Costs via Air, Ocean - Sea & Land. (n.d.). Retrieved October 30, 2017, from https://www. freightos.com/portfolio-items/freight-rate-calculator-free-tool/ Home. (n.d.). Retrieved October 30, 2017, from http://www. commisceo-global.com/country-guides/phillippines-guide Hamlett, C. (n.d.). Business Etiquette in the Philippines. Retrieved October 30, 2017, from http://traveltips.usatoday.com/businessetiquette-philippines-16184.htmlU.S. International Trade Commission - USITC. (n.d.). Retrieved October 30, 2017, from https://hts.usitc.gov/?query=6103 Hamlett, C. (n.d.). Business Etiquette in the Philippines. Retrieved October 30, 2017, from http://traveltips.usatoday.com/businessetiquette-philippines-16184.html WPS - Map of ports in Philippines. (n.d.). Retrieved October 30, 2017, from http://www.worldportsource.com/ports/PHL.php (www.dw.com), D. W. (n.d.). Philippines: A country prone to natural disasters | Asia | DW | 10.11.2013. Retrieved October 30, 2017, from http://www.dw.com/en/philippines-a-country-proneto-natural-disasters/a-17217404 W. (n.d.). Retrieved October 30, 2017, from http://manufacturer. fibre2fashion.com/garment/country/Philippines/index. html?&Page=6

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