Liberalization,
“What is wrong with protectionism? The industry has progressed, as you can see, from the development of shopping malls. There are so many stores now — fastfoods, sporting goods, book stores, department stores. So there is an element of competition. This is where the Filipino is trying to do his best,” countered Roberto Claudio, vice- president for national affairs of the Philippine Retailers Association (PRA).
He told BusinessWorld Filipinos have lost their opportunity to excel in the liberalized sectors. “We have lost manufacturing, we have lost construction, we have lost banking, part of telecommunications. So where is there for Filipinos to try their hands on if not for the retailing industry.”
Mr. Claudio said retailers have initiated steps to be at par with foreign counterparts such as the installation of the bar-coding system (article numbering) for a more efficient distribution of goods; an electronic data interchange between the supplier and retailer; and an anti-theft system.
Improving oneself is a natural tendency which local retailers admit would happen in a liberalized market. Ronnie Ong, general manager at Robinson’s Supermarket Corp., told BusinessWorld Filipino retailers must now change the system and improve technology — goals which were not considered 10 years ago.
He recalled that about a decade ago, Filipino retailers were still operating on the “traditional concept” of retailing — simply replenishing diminishing stocks and issuing checks to sales agents who made regular visits, a far cry from foreign counterparts who have since streamlined and computerized their operations.
Jose Albert, president of the Philippine Association of Supermarkets, Inc., said while the retail trade protection law has been in existence for more than four decades, the government has done nothing to provide the infrastructure to develop domestic trade within the same period.
“For how many years, we have price controls which did not allow the industry to grow. The question is when do you open. Let them ( foreigners) in and let them ( locals) die or you create an atmosphere so that companies can be ready to compete outside. The ( government’s) basic attitude is, ‘ If you cannot compete, die,’” he told BusinessWorld.
But Mr. Osmeña said this, in essence, is what business is all about. “We have been sinking, and now we have to start swimming,” adding the retailers have yet to come up with concrete reasons to maintain a protected market.
A major concern voiced by the retailers is the effect of the liberalization bill to small- and medium-sized operators. They said the low minimum capitalization would effectively allow foreigners to compete with small sari-sari (convenience) stores.
Under the Osmeña proposal, enterprises with a minimum capitalization of P10 million may be 100% owned by foreigners; at least P5 million, 60% foreign-owned; and less than P5 million, reserved for Filipinos.
It included a safeguard for small- sized businesses by prohibiting foreigners from small-time activities such as retailing through mobile or rolling stores or carts, multi-level selling and door-to-door selling.
On the other hand, the Lower House version, under House Bill No. 23 which was filed by Negros Occidental Rep. Herminio Teves, a re- filed version of his son’s ( former Rep. Margarito Teves) bill, is more restrictive as it requires a minimum paid-up capital of $10 million for a 100% foreign-owned entity, and $5 million for 49% foreign ownership.
The Osmeña bill is closer to the recommendation of the House committee on trade and industry of the 10th Congress, except that the equity participation of foreigners with a capitalization of at least P5 million is limited to 49%, and that two years after the law’s passage, foreign equity will be allowed up to 100%.
Under the Teves proposal, however, the foreign retailer would have to raise at least P400 million ($10 million) for an outlet that would cover only the building and inventory costs, less land acquisition as foreigners are prohibited from owning real estate under the Constitution.
“Four hundred million pesos! Nobody operates with that amount nowadays in retailing, except probably if you are a big outlet like Makro ( Pilipinas Makro, Inc.). But the big department stores like Saks Fifth Avenue, Macy’s, Niemann Marcus or Broadway are on the way out. The trend now is on establishing small-chain boutique stores where you sell a mixture of the brand items,” said Mr. Osmeña.
He said a survey among retail establishments in malls within Metro Manila shows setting up an outlet would only amount to about $ 40,000 ( P1.6 million), which would cover the cost of installing carpet, shelves, cash register, display cases, lights, glass doors and a view window, among others.
“Nobody will come in here with that amount ($10 million). That’s not gonna solve our problem (to instill competition). Besides, Filipinos don’t have a large disposable income to be an attractive market (for foreign retailers),” said Mr. Osmeña.