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

Philippine Tatler - - JANUARY - Pho­tog­ra­phy MJ Suayan Lo­ca­tion Sage at Makati Shangri-La

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!

ROUGH wa­teRs aHeaD Eric Thomas Dee, COO of FOODEE Global Con­cepts, is pre­par­ing for chal­leng­ing times; (op­po­site) The worl­dac­claimed fur­ni­ture de­signer Ken­neth Cobon­pue sees a less rosy pic­ture for the cre­ative en­tre­pre­neur

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