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Meet me in Manilla

Meet me in Manilla

The opening up of international markets, increasingly mobile production and dramatic improvements in communication technology have facilitated the movement of resources and productivity worldwide. With national governments under increasing pressure to reduce barriers that impede the movement of capital and resources, economic globalisation is a phenomenon that looks unlikely to wane. Recognising its consequences can be both beneficial and deleterious at a national level many countries are struggling with its implications, including Australia.

Widely touted as leading to a marked improvement in trade opportunities, those economies that are able to take advantage of economic globalisation will be those whose industries are able to identify new markets on a international level. With roughly 190 different countries to choose from, identifying opportunities may seem a daunting task for many in the Australian business community. However, there is help available.

Australia's export and investment facilitation agency, Austrade, a Federal Government offshoot of the Department for Foreign Affairs and Trade, attempts to smooth the path for Australian companies attempting to break into foreign markets. Apart from providing export assistance and cultural and economic information, it also plays a crucial role in identifying areas of opportunity and assisting via trade missions and local contacts in target markets.

One market currently under the Austrade microscope is a country better known for its 20-year, US-backed Marcos dictatorship and its shoe-obsessed first lady. Since Corazon Aquino took power in 1986, the Philippines has been on a rocky road to economic and political recovery.

The economic climate

In recent times the Philippine economy has stabilised and shown steady growth. It has recovering quickly from the Asian economic crisis, bringing both inflation and interest rates under control. The stability and cheap, largely English-speaking labour force has attracted the interest of several multinationals, including America-Online (AOL), Arthur Andersen, Barnes & Noble, Caltex and Citibank. While many of these companies are primarily interested in using the country as a source of cheap labour to funnel goods and services back into their own economies, they also provide increasing opportunities for the entry of companies which can develop the Philippine IT infrastructure and education services.

In the last 25 years the Philippine economy has made a dramatic shift, from one which drew approximately 50 per cent of its export earnings from agro-based products to one which draws 72 per cent of its export earnings from electronics. According to Kylie Bell, Austrade trade commissioner based in Manilla, private and government institutions are increasingly on the lookout for third parties to implement IT solutions.

"We have recently seen a move, particularly by the government, to use local IT firms for these projects to create employment domestically," Bell said. "In order to successfully compete in the Philippines, it is essential to have a strong local representative partner or presence."

While this may sound daunting, a mixture of strong Austrade backing and a series of incentives for IT companies setting up in so-called IT and Economic Parks make entry into the market much easier.

On a mission

While Austrade's Bell emphasises the importance of local partnerships in the establishment of operational branches in the Philippines, she points out Australian IT companies are not alone when it comes to penetrating such new markets.

A recent trade mission to Manilla featured the participation of Australian operations such as Crossecom, Infrontier & Microlistics, XLPrint Software, Paradigm R&D, as well as Australian representatives of global operations such as Unified Telecom and Borland Australia.

According to the participants, the mission provided them with unprecedented access to upper-level management of Philippine companies which, represent both customer and partnership opportunities.

Chris Back, general manager of high-end industrial integrator and developer Crossecom, said the trip brought about significant networking opportunities for all the companies involved.

"Our own people in the Philippines had been working for months trying to tee up meetings with some of these guys. With Austrade's assistance, we finally got a chance to speak with them," Back said. "The business culture of the Phillipines has a lot of respect for a company which has a close relationship with its government, so the participation of Austrade was central to the trip."

Gabrielle Webster, regional channel manager for Borland Asia Pacific, was particularly impressed by the level of the contacts facilitated through Austrade's participation. Yet she was quick to point out the success of such a trip should not be measured in terms of purchase orders.

"Austrade only presented us with very high level and senior management," Webster said. "I met with the CEO and presidents of a series of major corporations, but you can't go over there expecting to pick up business immediately. It is all about forming contacts. One of the CEOs I met was only really interested in talking about his new set of golf clubs."

However, these types of trade missions also represent a lot of hard work for the participants. Tony Poynton, managing director of Australian software developer XLPrint, pointed out the importance of research and planning in the run up to such a trip.

"You have to have a very clear idea about what you want to achieve, and express this to Austrade," Poynton said. "As long as they know what you are looking for, the people on the ground are excellent at finding exactly the people you should be talking to."

Targeting the markets

According to Austrade, Australian IT businesses currently have opportunities in a number of vertical markets as a push to modernise and reform is gaining momentum in a number of industries.

"Over the next 12 months, many major corporations will develop IT budgets with increased IT expenditures for the next financial year and beyond," Austrade's Bell explained.

There are three areas that are generating particular interest for Australian technology companies in the Philippines. These are based around the provision of IT training and education, the infrastructure associated with call centres and mobile phone messaging services.

The fledgling Arroyo government has indicated IT development as an economic priority and has backed up its commitment with significant investment in the IT sector. The president and key government officials have joined with prominent representatives from the private sector in the formation of the Information Technology and E-Commerce Council (ITECC); a body designed to promote the development of IT within the Philippines.

According to a draft government report, ITECC member Dr William Torres recently indicated call centres in the Philippines would be worth as much as $7 billion by 2004.

According to Torres, the global slowdown in technology spending is causing IT companies to look for inexpensive alternatives for their call centres. With a highly educated English-speaking workforce, the Philippines allows companies to cut back on labour and operating costs.

Multinationals that already use the Philippines as their base for call centre operations include AOL, Citibank and networking vendor Linksys.

At a local level, the Philippines is shaping up as an economy primed for the uptake of mobile commerce opportunities. Crossecom's Back believes SMS messaging substitutes for e-mail for many Filipinos.

"According to some of the presentations we attended, there are as many as 120 million SMS messages being sent and received every day in the Philippines," Back said. "That amounts to something like 20 messages per-mobile-phone-owner, per-day."

In fact anecdotal evidence indicated SMS messaging played a crucial role in the recent deposition of former President Joseph Estrada. According to some reports, Estrada's opposition used SMS messaging to quickly spread information about where and when protests were to occur.

Back believes the propensity of the Philippine population to use SMS messaging reflects a comfort level with the use and implementation of new technologies.

"The usage is already there. All it will take is companies that know how to harness this kind of thing for business," Back said.

Educating IT

The other area where Australian companies are well placed to make significant inroads into Philippine markets is through the provision of educational services and infrastructure.

The Philippine Government has a stated objective to double the number of qualified IT workers in the Philippines over the next five years, an objective that will require significant investment in IT education.

According to Austrade's Bell, Australia is already recognised for its abilities in this arena. Philippine companies and institutions are actively seeking partnering in order to roll out training solutions.

As part of this partnering agenda, ITECC is motivating the establishment of extensive public and private sector training centres. Some of the initiatives the council is developing includes the rationalisation and expansion of industry-based training programs, the general upgrading of curriculum and standards, and recognised certification of IT professionals. In order to support these kinds of developments, the ITECC is also looking at increasing school competency in mathematics, sciences and English, as well as investing in the training and development of IT-focused teachers.

Bell believes this approach will open up ample opportunities for Australian companies, especially in the areas of teacher training, educational partnerships with local institutions and curriculum development for distance and e-learning. More immediate opportunities also exist in providing the basis for such development, in terms of school and university intranets and IT infrastructure generally.

The most powerful advocates for the Philippine market however are the Australians who have recently returned from the "Pearl of the Orient". While they are pitching to different markets and sectors, they are united in their enthusiasm for the opportunities the Philippine market represents.

Borland's Webster sums

up what for many is the

main attraction in the Philippine

market.

"What is exciting for me with the Philippines is the IT agenda, people are enthusiastic about using IT to build the economy and get things really moving," Webster said. "Wherever you go and whoever you talk to they are looking for business opportunities, that's a buzz you don't get very often."

Locating the business

By setting up operations in one of the Philippines IT and Economic Parks, Australian companies stand to benefit from a series of tax and staffing concessions including:

- 4 - 6 - 8 - year Income Tax Holiday (ITH).

- Special 5 per cent tax rate after the lapse of ITH.

- Tax and duty exemption on imported capital equipment.

- Unrestricted use of consigned equipment.

- Additional deduction for training expenses.

- Additional deduction for labour expenses.

- Exemption from wharfage dues, duty impost and fees.

- Employment of foreign nationals.

According to AusTrade, taxes and local staff requirements will vary on a case-by-case basis and foreign companies should consult with the Philippine Board of Investments. Information can be obtained from the Department of Trade and Industry Web site, www.dti.gov.ph.

Got what it takes?

According to Austrade, research opportunities exist for Australian companies that can provide the Philippine economy with expertise in a couple of key areas. These areas include:

- Telecommunications equipment, technology and services.

- Call centre investment, technology and services.

- Remote education and e-learning applications.

- Financial and banking systems.

- Vertical software applications such as inventory management, retail technology and CRM software.

- e-commerce applications and consulting.

- Government front-end customer services and integration.

The Phillipines at a glance

Capital: Manila.

Head of Government: President Gloria Macapagal-Arroyo.

Surface area: 300,000km2 H.E.

Official languages: Filipino (Tagalog), English.

Population: 78.4 million (2000).

Exchange rate: $A1 = 27.005 Pesos (June 2001).

GDP: $US75.2 billion ($US1000 per capita).

GDP growth: 3.9 per cent (2000), 2.9 per cent (2001).

Inflation: 4.4 per cent (2000).

Unemployment: 11.7 per cent (2000).

Current account surplus: $US9349 million (2000).

Major Australian exports to the Philippines totalling $1524 million (2000): Milk and cream ($312 million), live animals ($118 million), crude petroleum ($110 million), coal ($83 million), telecommunications equipment ($78 million), services ($186 million).

Major Australian imports from the Philippines totalling $533 million (2000): Computers ($105 million), integrated circuits ($77 million), equipment for distributing electricity ($53 million), telecommunications equipment ($45 million), radio-broadcast receivers ($25 million), services ($186 million).


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