The Philippines has long been known as an outsourcing destination, particularly for companies in the US. But the Southeast Asian country is fast proving that it’s much more than that. As one of the fastest growing economies in the region, the Philippines has a tremendous amount of opportunity to tap into.
In the next few years, despite the global slowdown, the Philippines’ economy is forecast to grow by 6% or more annually1
. Its workforce is young, with a median age of 25.3, well-educated and extensive – the population is over 110 million people2
In his first State of the Nation Address in July 2022, President Ferdinand Marcos Jr. said his administration is looking to bring the Philippines to upper-middle income status by 2024. The country had targeted this milestone prior to the pandemic and is now back on track. Spending power at home is bolstered by the estimated 8 million Filipinos living abroad, most of whom send significant remittances to family back home.
The country is the world’s second largest centre for business process outsourcing (BPO) and boasts a strong industrial sector, particularly in manufacturing of electronics and technology components for overseas firms. It is also rich in natural resources, with significant reserves of chromite, nickel and copper that contribute to its attractiveness as an electronics manufacturer.
But perhaps most importantly, the country is opening up more to foreign investment in a bid to further spur growth. The Philippines is currently welcoming expertise to help it sharpen its competitive edge and make an impact in future industries.
An aggressive push for foreign investment
Just a short time ago, certain sectors in the Philippines had to have a majority local owner, making it difficult for external firms to enter the market. However, recent legislation to update acts such as the Retail Trade Liberalization Act of 2000 and the Foreign Investments Act of 1991, also known as the Public Services Act, has opened up the market, making foreign direct investment simpler and more rewarding.
Foreign investors can now own 100% of their ventures in certain critical industries3, including infrastructure such as telecoms, airports, seaports, rail and renewable energy projects. This has stirred a lot of interest from traditional investors such as the US, but also from nascent trading partners, including countries like Denmark and Belgium in Europe.
The Philippines is also a member state of the Association of Southeast Asian Nations (ASEAN), comprising ten nations of Southeast Asia with a combined GDP of USD3.3 trillion in 2021, equal to roughly 3.4% of world GDP.
Sectors with strong growth opportunities
A key sector for expansion in the Philippines is renewable energy. Because it is a collection of islands, energy in the Philippines is amongst the most expensive in the world, relative to the purchasing power of its inhabitants. Because a central source of power for the whole country is difficult, the smaller scale solutions offered by wind, solar and nuclear industries are central to efforts to increase energy independence and security, while lowering costs. European companies are one of the largest sources of investors here, as they hold a wealth of expertise in renewables.
The ecommerce sector has a large intra-Asia element, in that companies tend to expand through the region. A typical example is delivery service Food Panda, now owned by Berlin-based Delivery Hero, which was established in Singapore in 2012, before expanding to Malaysia, Indonesia, the Philippines, Taiwan and Thailand.
Electric vehicles (EV) and associated battery manufacture are also a good fit for the Philippines’ electronic manufacturing expertise and natural resources, and its sustainability targets. The country has pledged to cut greenhouse gas emissions by 75% from 2020 to 20304, targeting a 10% increase in the penetration rate of EVs by 2040 to help it reach this goal.
The Philippines is second only to India in business process outsourcing (BPO), and this sector will likely remain a key part of its economy going forward. The US is the biggest investor here, whether it’s in internal shared service centres or external outsourcing. The country has built a strong reputation in BPO through its workforce, which is young, English-speaking and well-educated.
Challenges for businesses coming to the Philippines
In the past, the barriers for international companies doing business in the Philippines were restrictive. Foreign investors couldn’t fully own ventures in the country, and there were other operational restrictions, a lack of transparency in procurement tenders and inadequate public investment in infrastructure. However, the government is tackling these issues head on. In 2022, Philippines leader Ferdinand Marcos Jr went on his first overseas trip and secured investment pledges of $14 billion when he declared the Philippines open for business5.
"This [investment] will support our country's economic recovery efforts and create more jobs for Filipinos here in our country," Marcos said on his return. "We look forward to doing the detailed work that is necessary to bring all these proposals to fruition."
The administration of former Philippines President Rodrigo Duterte implemented a massive US$180 billion infrastructure-spending plan in 2018, called the ‘Build! Build! Build! Program’. It included up to 75 enormous flagship projects, including airports, railways, seaports, roads and bridges, to try to close the country’s existing infrastructure gaps, encourage investment and job creation, and boost GDP growth from 6.7% in 2018 to 7-8% in the following years. Public infrastructure investment rose from an average of 3% during 2011-16 to over 5% in 2018 and is targeting over 6% in 20226.
International Subsidiary Banking
As the Philippines opens up further to foreign investment, organizations considering projects there need a partner bank that has an international approach, as well as vast experience with other global businesses.
HSBC’s international subsidiary banking offering can help you overcome many of the challenges that you may encounter when entering or expanding into a country like the Philippines. It provides the advantages of a well-connected local bank with a deep understanding of the complexities of doing business in the market, combined with a unique global perspective.
We can help you to stay in control of your finances by tracking them globally and in real-time with HSBCnet. We can assist you in optimizing your cash management to free up cash flow – making capital available for investment in your organisation’s future. We also have detailed knowledge of the market and understand its nuances, such as tax management, cash management and FX.
Companies can access flexible financing solutions across our global network in order to expand their business effectively or lean on us for support when it comes to identifying growth opportunities. Solutions will be tailored to you and your business – and, crucially, financial communications will be streamlined – helping to make this transition as smooth and uncomplicated as possible.
Our international universal banking model offers something that no other bank in the Philippines does, at a scale that’s unique to HSBC. We have a long history in the market, incorporating here in 1875, just ten years after HSBC was formed.
We have the local expertise and insight to help you navigate the market with confidence, combined with the global scope and scale to help you achieve reach in the Philippines and other ASEAN markets and beyond should you need it.
Our specialist international subsidiary banking teams work with businesses all over the world. We’re in Europe, the US and across Asia, providing clients with a broad range of products and services to support their expansion. By partnering with HSBC, companies looking to move into this region can lean on us for extensive support.
We have a partnership with the Department of Trade and Industry in the Philippines to help bolster key investment corridors including the US and Europe. With businesses in the country, we do everything from the middle market up to largescale internationals.
Our global HSBCnet platform and advanced cash management solutions help business better manage their cash flow, cut down manual processes, and reduce costs whilst enhancing return of surplus funds. These platforms also give visibility across borders, allowing firms to trade FX centrally or regionally.
With HSBC as your banking partner, you’re firmly in control of your expansion into this exciting, growing market.