DAVAO CITY –— Locating production and manufacturing facilities overseas has long been a common strategic decision for international companies, but the current volatility of the global economic landscape makes it a more urgent one than ever. Changing trade policies, rising operational costs, labor shortages, and other supply chain-related risks have severely compromised production even for formerly competitive firms. In light of these difficulties, many companies are seeking to move their operations out of presently unstable countries.
Of course, relocating to a different country is no light decision, even for a business accustomed to managing operations internationally. There are certainly many compelling reasons to consider doing so, including cutting costs, exploring opportunities for innovation, or expanding into new markets. However, it’s also worth noting that economically attractive locations may also be socio-politically unpredictable, and businesses that have been reliant on the relative stability of Western democracies may struggle to find their footing in such places. On the whole, it’s best for companies to evaluate their potential relocation options from a holistic perspective before committing to a large-scale move.
In recent years, the Philippines has emerged as a major manufacturing hotspot for global enterprises. While the country has long been valued for its relatively low cost of living and skilled workforce, government efforts to develop a more business-friendly environment have also elevated the country’s appeal as an investment destination for manufacturing.
Here are four important factors for business owners to consider before relocating production abroad, plus a treatise on why investing in the Philippines could be a productive move:
Business Environment
Enterprises aiming to set up shop outside their countries of origin can expect to encounter a host of regulatory and statutory challenges. Depending on their choice of investment destination, these difficulties might relate to business registration procedures, regulations regarding labor and taxation, political stability, available infrastructure, and many more. Naturally, countries that prioritize infrastructure development and ease of doing business are the best possible choices for companies looking for potential investment destinations.
The Philippine Economic Zone Authority (PEZA) is a government agency that promotes the development of special economic zones for foreign investment within the country. PEZA is also responsible for registering, assisting, awarding incentives to, and generally facilitating the business operations of investors within these zones. Aboitiz InfraCapital’s economic estates, which currently span 1,400 hectares of development nationwide and are home to over 200 enterprises, are some of the country’s best-known PEZA zones. These master-planned communities blend retail, industrial, commercial, and residential spaces seamlessly to better support the operations of partner companies.
In addition to offering efficient, transparent registration processes with minimal paperwork, PEZA zones also provide generous tax incentives to help locators cut down on their setup and operational expenses. Moreover, support services for foreign businesses are available in PEZA zones even after the setup process is completed. All told, manufacturing businesses located in PEZA zones will have all the resources and assistance necessary to start operating as quickly as possible, free of the regulatory and legal challenges they would likely encounter at other locations.
Availability of Labor
It’s vital for businesses to have abundant, clear, and accurate data on the labor market in any country they’re considering relocating to. This necessitates in-depth research into local professionals’ backgrounds, business and technical skills, languages spoken, and educational attainment. It would also be beneficial for companies to investigate training and education trends in the region, as well as demographic trends like age profiles and average employment rates.
Fortunately for foreign investors, the Philippines is home to a relatively young, well-educated, and highly skilled workforce. The population’s median age is currently estimated at around 25.7 years, and more than 95 percent speak English. The government is also mounting numerous initiatives to improve employability in the country. These include implementing more modern technical and vocational training (TVET) and apprenticeship systems, facilitating access to employment opportunities for jobseekers, and promoting constructive labor-management relations
Suffice to say, for a field as competitive and labor-intensive as manufacturing, a country like the Philippines will have everything you need. The factors listed above may contribute to a smooth, productive integration experience once you open a new manufacturing facility there.
Costs
Another important factor when it comes to choosing an investment destination is cost. Businesses aiming to establish production facilities abroad will need to plan for essential costs such as staff salaries, transport, telecommunications, power, office space, and more. Projected expenses should take into account both employment and corporate taxes, currency fluctuations, general and wage inflation, and any economic incentives the company can leverage to increase savings.
Given the relatively low cost of living and doing business in the country, incorporating in the Philippines can be a strategic and cost-effective choice for many international companies. For one thing, the national government is keen on prioritizing reforms to open up the economy to private and foreign investors and improve the country’s macroeconomic foundation. The hope is that a continuing agenda of infrastructure development will open up more sustainable, high-quality jobs in manufacturing and other key sectors.
Community
Naturally, it’s also in companies’ best interests to consider other factors about the location that may not be related to manufacturing per se, but are nonetheless important for maintaining successful business operations in the area. Local climate, transportation availability, sanitation, natural hazard risks, connectivity, and personal security all play a role in determining whether locators can thrive in a host country where they intend to increase their manufacturing capabilities.
Foreign companies considering relocating to the Philippines would do well to pay attention to initiatives aimed at improving water and digital infrastructure within the country. Aboitiz InfraCapital’s investments in small cell sites and telecommunication towers throughout the Philippines have helped improve connectivity nationwide and are especially important for helping inhabitants of rural areas access essential services and new livelihood opportunities. The Lima Water corporation, meanwhile, provides the numerous multinational companies headquarter in Lima Technology Center, Batangas with end-to-end water and wastewater services.
Companies that choose to operate in locations where such essential support infrastructure is available can look forward not only to more efficient manufacturing operations, but also improved overall brand equity and more positive relationships with local communities.
Relocating production facilities abroad can be challenging, but the potential rewards are great for companies that choose the right location. Well-rounded investment destinations like the Philippines can provide global businesses with secure and efficient environments in which to grow their manufacturing capacities overseas.
