How can the Philippines capitalize on the business world’s “economic

distancing” from China?

Ramon Angelo S. Ortiz IV / April 22, 2020*

In just a matter of weeks, the coronavirus (COVID-19) pandemic evolved from being viewed as a
manageable disease to one of the greatest challenges of our time. Tracing its origins back to the commercial
city of Wuhan in China, this pandemic resulted to over a million infections and hundreds of thousands of
deaths worldwide, as of the time of writing. The crisis brought by this disease resulted to the closure of
international borders, decline in global trade, interruption of local businesses and virtually a temporary halt
to most economic activities locally and globally, affecting even the world’s economic superpowers such as
China, the United States (U.S.), the European Union and Japan.
For its part, Japan and the U.S. already expressed its intention to shift most of its manufacturing
activities away from China and avoid present and future supply chain disruptions to its business operations.1
These two economic superpowers even went further to incentivize their local companies to go home or set
up shop somewhere. On an economic standpoint, it makes more sense to do the latter. One particular region
has been eyed to benefit from this proposal: Southeast Asia.
The Southeast Asian region has gotten its share of foreign investments in the past and continue to
gain as they constantly reform their policies to suit the requirements and attract major foreign companies.
At the helm of such industrialization are the land and manpower-rich countries of Vietnam, the Philippines,
Thailand, Indonesia, Cambodia and Myanmar. Unfortunately, the Philippines is not the top choice for
relocation of Japanese manufacturing firms.
In an e-mail he sent recently2, Japan External Trade Organization (JETRO) Executive Director
Takashi Ishihara cited a pre-pandemic 2019 report where 42.3% of Japanese manufacturers selected
Vietnam as a viable transfer destination, followed by Thailand at 20.6% then Philippines at 18.6%.2 The
report cited Philippines’ lack of supply chain and raw material production as the main hindrances in its bid
for foreign investment. Furthermore, the Philippines also have major downsides such as high operational
cost factors like electricity and wages, high number of non-working holidays and a negative culture of
excessive government corruption and bureaucracy, among other things. Our government’s response to the
current pandemic does not help our plight as we now lead the ASEAN region in number of confirmed cases
and deaths.
Indeed, Vietnam has a lot of advantages and offers the most incentives for foreign investors. In
addition to its good geographical location, Vietnam offers low operational expenses in wages, which may
be attributed to the absence of income taxes and state control of trade unions, lower electricity rates, lower
construction costs and good tax incentive packages. The improvement in the country’s literacy also showed
investors that its manpower can soon compete with one of the Philippines’ major advantage – having a
skilled and English-speaking workforce. The recent pandemic and Vietnam’s efficient handling of it even
favored the country in a special way: it showed social and political stability in handling disasters.
Post-pandemic Philippines must capitalize on this opportunity. It will surely help the country
rehabilitate its economy and help stabilize the industrial sector in the long run. The prevailing question
remains: how can the Philippines bid against Vietnam?
 Currently, the country has two (2) major selling points: its strategic location and its workforce.
Explaining the first point, the country’s location has always been its major advantage. Conquerors of the
past and superpowers of the present view the country as the most valuable real estate in Asia. It is rich in
natural resources, has a favorable climate, and is virtually located at the center of the trade routes of China,
South Korea, Japan, and Australia and is a doorway to the Indochina and Indo-Malayan regions. Another
competitive advantage of the Philippines is its workforce. As previously stated, the country has a skilled
and English-speaking workforce – a factor good enough to attract foreign Business Process Outsourcing
(BPO) companies.
These two (2) major advantages alone would not support and strengthen the Philippines’ bid for
foreign investments. What the country needs is an improvement on its non-inherent factors so it can prepare
attractive incentive packages to investors. This paper wishes to address this problem. For a start, we can
review the implementation of our existing laws in response to the persisting issues of crime, corruption,
insurgency and terrorism.
Another solution is reviewing and possibly amending our existing investment and fiscal policies to
attract foreign investors. It is worth noting that we have existing tax incentives. In addition, we have the
Philippine Economic Zone Authority (PEZA) and Board of Investments (BOI) to offer more. Are these
incentives enough to lure investors away from our neighbors and attract them to our shores? Data from the
past and global perceptions in the present do not agree. One major topic worth discussing is the existence
of the “60-40 foreign-ownership cap” in the 1987 Constitution. Addressing this particular issue is not as
simple as it looks and may lead to the ever-divisive subject of Constitutional reform.
In conclusion, big companies offering great opportunities are at our doorsteps. It is just a question
of how can we attract them to come in. This is a decision that can make or break our long-term economy.
This problem clearly needs legislative solutions and it needs to be addressed soon.

1
https://asia.nikkei.com/Editor-s-Picks/China-up-close/Xi-fears-Japan-led-manufacturing-exodus-from-China
2
https://www.bworldonline.com/phl-not-top-choice-for-japan-firms-moving-from-china/