Opening Act
Philippine Tatler starts the year off with a look into the business sector by asking its major players and respected pillars for their thoughts on 2019. Listen in on their conversation, and pick up a piece of advice or two
Know the business landscape from the best players in the industry. Our forum returns this year with the brightest minds sharing the wisest suggestions
The start of a new year is always a review of the past and a prediction for the future. Based on the known facts and the assessment of trends, safer decisions and surer directions can be made—especially by those hedging their bets on an investment, like entrepreneurs. Looking at the landscape in front of them are four major players in the business sector—furniture designer Kenneth Cobonpue, fashion and accessories retailer Anne Arcenas Gonzalez, food chain proprietor Eric Thomas Dee, co-founder of e-commerce hub Zalora Paulo Campos —and two from the same sector but on a corporate level—Marife Zamora, chairman of Convergys Philippines, and Wick Veloso, newly appointed president of the Philippine National Bank.
WICK VELOSO: Allow me to start this conversation with a picture of the current economic landscape. We are lucky that the Philippines is already into the US$4900 per capita income level. Any economy that has entered a $3000 per capita income experiences a strong consumer demand. We have a two per cent population growth rate, with an average age of 24. On a base of 106 million Filipinos, you’ll at least have a high single-digit growth rate, or if the economy gets further managed properly, a low doubledigit for the next 20 years.
Because of this strong consumer demand, you have a strong catalyst for employment. It brings about so much economic activity. Clearly, our country is now poised for a new segment that has become very empowered—the middle market. The situation is also good for us banks because it allows us to support small, medium, and large businesses. The overall message, therefore, that we see is that the Philippines is open for business.
MARIFE ZAMORA: Harvard professor Richard Vietor said that in the Philippines, you can sell anything because we have one of the highest consumption expenditures as a percentage of GDP ratio in the world. That’s at 73 per cent. We are on the list of the largest consumer markets globally, according to the World Bank.
PAULO CAMPOS: I think that there is no other country in the world more exciting than the Philippines today because of its digital opportunity. Out of 106 million Filipinos, about two-thirds now have access to the internet. We are the number one country in the world in terms of time spent on social media, the only country with a 100 per cent social media penetration. There are 60 million Facebook accounts from the Philippines alone. Given that we’re moving to the digital age, it really positions the Philippines well. We’re very techsavvy and it comes naturally. There’s a power in Filipinos being online all the time that can be harnessed for positive change.
WV: It is also a fact that 62 per cent of the country’s GDP or its economic activity lies in the peripheries of Metro Manila. Everybody goes to Metro Manila not to shop but maybe to take connecting flights to other countries around the world. If you don’t have a presence in the province, how are you capturing this opportunity?
ANNE ARCENAS GONZALEZ: In the last two years, many of the stores we opened were outside Metro Manila. We have also been working with Paulo [Campos] and through Zalora, we are able to have a wider national presence. E-commerce allows us to serve places that we otherwise couldn’t reach through brick and mortar. Online shopping is becoming more convenient because of the increasing number of pickup points for digital consumers who are at
work most of the day and aren’t home to personally receive their packages.
PC: The majority of Zalora’s business is outside Metro Manila. We feel the power of the provincial regions growing much faster.
ERIC THOMAS DEE: All growth [in the food sector] is [also] outside Metro Manila. We see growth in CDO, Davao, all those areas, and they go to Manila to find a franchise. We joined a franchise expo for the first time two years ago; it took us two years to service the demands that we got from it.
KENNETH COBONPUE: You’re all from Manila and the perspective is different [in Cebu]. I agree that in the service sector, things are rosy; but for manufacturing, it’s a bit tough. Statistics are saying that there are a lot of imports and that exports are going down. The last Filipino clothing brands have been closing and their founders are now more into trade retail. Which I think is sad, culturally, even though it is good economically. I’ve been asked many times, “Why can’t you design things that people can afford?” I answer, sure; but it can’t be manufactured here, it must be done in China. If you notice, there’s nothing sold to the middle class that’s made in the Philippines. Which, in a way, is sad.
WV: One of the key factors in manufacturing is that raw material is available locally. It’s unfortunate that in some industries we export the raw materials to other countries, and guess what? These countries put it together and we import the finished product.
A programme [to revive manufacturing] must be based on a complete understanding of the chain of how products are created from start to finish. It also must be an effort by both private and public sector. There are financial institutions like the Development Bank of the Philippines who are mandated to support these kinds of industries.
MZ: The growth of the manufacturing sector has been steadily improving post-2010 financial
“...in the service sector, things are rosy; but for manufacturing, it’s a bit tough” —Kenneth Cobonpue
crisis. This year, the volume of production index (VoPi) has grown, unlike last year’s negative growth. The improvement was attributed to the double-digit growth of eight major industries led by textiles, which rose 42 per cent. The highest capacity utilisation rate was recorded in petroleum products’ manufacturing plants and the semi-conductor and other electronic components industry employs the most number of workers.
PHILIPPINE TATLER: Can a creative entrepreneur not really capture the middle market and must go high-end to survive?
PC: Here’s where, potentially, technology can suggest a way forward. We also have hundreds of entrepreneurs who sell on our platform virtually. Through this simple act of opening our platform to SMEs and entrepreneurs, businesses are able to scale [cost and operations] in ways they might not have been able to, had they been a store in a mall.
For me the big breakthrough for entrepreneurship in the Philippines is if we can have one good case study of a local unicorn company that was started in the Philippines. In 2017, Indonesia got 50 times more venture capital than the Philippines.
PT: We do have only one unicorn company here. Why is that?
PC: It’s a chicken and egg situation with regards to the funding landscape—startups emerging first, followed by funding; or angel investment and venture capital investment being made available first to encourage startups. The reason why Indonesia is unicorn heavy is the presence of a funding landscape to support the growth of startups. There is nothing about us that is inherently less capable than them; it’s really about the funding.
AAG: What, then, holds investors back?
PC: I think Filipinos are very segurista [not risktakers]. In places like Vietnam, there are very strong tie-ups between technical schools that churn out software developers and companies who form this kind of clustering, like in Silicon Valley. We don’t really have the ecosystem, the funding, or the private-public-education tie-ups to create that initial mindset.
What’s promising though is that the Philippines is now on the map of investors’ radars. It’s in 2019 when I think we will make a major breakthrough. PT: What advice can you give those who are thinking of being entrepreneurs themselves?
WV: All you need to do is identify a growth opportunity in the country. For example, infrastructure is not just about highways, airports, ports, or bridges. Breaking it down, it is steel, cement, aggregates; and further, wires, nails, and fixtures like doorknobs. Attach yourself to each and everything that the country needs. Just identify the drivers of the economy, which is a no-brainer because they are still the same. You cannot reinvent the wheel because for the next years you will still need the same basic things.
AAG: My advice has to do with the mindset of younger entrepreneurs. You simply need to do the work. You need to hustle. While I was lucky to grow up comfortably, I would not have gotten to where I am today without getting my hands dirty. This as a challenge to a generation
“What’s promising though is that the Philippines is now on the map of investors’ radars”—Paulo Campos
“I see the Philippines, however, in a very good position...peso depreciation is also a boon to our industry”—Marife Zamora
that tends to focus on speed and instant gratification. Many younger ones now want to make money fast and take on projects so they can travel and have all these experiences, but end up spending most of what they earn quickly. Then they go back and start projects again. An increasing number prefer freelance work so they havemore flexibility. This is not a bad thing, but when the opportunities are there, you need to commit yourself in order to really succeed. A business doesn’t come with a full staff, a nice office and all the perks right away. These things, you have to work for, they are earned.
PT: What about the devaluation? The peso is now at 53 to a dollar, from 47. Devaluation as well as the inflation rate.
ETD: The food sector is in for a lot of bad news, especially if a business imports a lot. Early this year, we did an exercise where we looked at our menus, taking out weak items. It’s really trimming down the fat, working more efficiently. We must toughen up, look at ways to make things work.
MZ: I see the Philippines, however, in a very good position. On one hand, the weakening of the peso can translate to higher domestic prices and add to inflationary pressures. On the other, peso depreciation is also a boon to our industry. The IT/business process management [IT/BPM] industry, families of overseas Filipino workers, and export-oriented companies all stand to gain from a weaker peso. The IT/BPM industry generated a revenue of $23B and employed 1.2M in 2017. The middle class market has really been beefed up by this sector.
PT: So many of the brands are now into upcycling, recycling. How are you adapting to this trend?
AAG: That’s something we’ve been working on for the last two years locally and discussing with the head office. Slippers, you know, are not fully perishable. There are other brands, particularly out of Silicon Valley, that are studying footwear that uses fully recyclable materials or something fully organic. We’ve started talking to groups, trying to figure out how to break down the product like, as some say, use them as eco bricks for construction.
ETD:
We’re changing all our plastic cups to paper cups. However, we are also in a trend of consumers taking food shots, and a plain white paper cup looks bad. Packaging, today, must be Instagrammable. It’s hard, but it must be done.
MZ: This is also something that’s going to be in the balance score-card of companies.
AAG: So Kenneth, on that note, I wonder if in furniture there may be, one day, some use for our material? And I wonder if it can become like part of a foundation, something inside the product and doesn’t have to be for aesthetic.
KC: Yes, of course. We also advocate sustainability. A product can be so well made that you can treasure it forever.
PC: Sounds like the seeds of a good business!