Monthly Archives: January 2013

And more Philippine jobs for all and all open for foreign investors

Let’s get the President to make 2013 another back-to-back one by doing the hard yards in amending the constitution to remove all restrictions on foreign investors and take the appropriate measures to counter any further appreciation on the Peso. By doing so, we may help increase more job creation as well as make the country an attractive destination for foreign investment.

From BusinessWorld Philippines

January 06, 2013

What next?

BY ALL ACCOUNTS, as one social media commentator stated, President Noynoy Aquino had a “kick-ass” year: he had former Chief Justice Renato Corona impeached and removed from office, jailed former President Gloria Arroyo, passed a trillion peso budget on time, concluded a Framework Agreement for peace with the MILF, and successfully overcame strong opposition to pass the Sin Tax law and the Reproductive Health bill.

And yet, in October, foreign direct investments fell and unemployment went up. What’s going on? Is it true, as his critics allege, that all these achievements are just “sound and fury signifying nothing.”? That investors, except for the hot money ones who fuel the stock market, don’t believe in the hype? That the 7.1% p.a. growth is enriching only a few, and that the paeans to “inclusive growth” remain, well paeans, without real substance?

While President Aquino should be commended for trying to fix the judicial system, making peace in Mindanao, and using his political capital to ensure passage of the contentious Reproductive Health bill and the Sin tax bill into law, the grim statistics about foreign direct investments and the higher unemployment rate show that the structural problems of the economy remain unaddressed.

As the Reuters report last December 18 points out: “While foreign funds have poured into Philippine assets this year, driving the main stock index PSI up around 30 percent to a succession of record highs and lifting the peso currency about 7 percent, foreign direct investment (FDI) remains embarrassingly low.”

“Total FDI is on course to hit around $1.5 billion this year — about half its level in 2007 and less than the average $1.7 billion received every month in remittances from Filipinos overseas.”

“That is only about 3 percent of the total that flowed last year to a group of five peer economies including the Philippines in the 10-member Association of Southeast Asian Nations (ASEAN).”

The Reuters report goes on to quote Guillermo Luz, chairman of the National Competitiveness Council, bemoaning the slippage of the country’s rankings in competitiveness indicators from “ease of doing business” to “paying taxes” to “starting a business.”

Clearly, there’s something amiss, and the Aquino administration can’t dismiss these concerns outright.

After his so-called kick-ass year, what does he have to do next?

He has to 1) have the Constitutional restrictions on foreign ownership lifted, and 2) address the appreciating peso problem.

There are a number of compelling reasons why he has to get the Constitutional restrictions on media, public utilities, land ownership, and educational institutions lifted, or amend the Constitution to transfer those restrictions from the basic law to ordinary legislation, so they can be changed easily as circumstances dictate.

The recent Gamboa decision of the Supreme Court, which relied on the Constitutional prohibitions on foreign ownership, stated that the 60-40 rule should apply only to voting common stock, and the subsequent Carpio obiter about the restrictions applying to all classes of stock, have reversed years of jurisprudence and SEC interpretation and are sending very bad signals that foreign investors aren’t welcome.

The ruling threatens even the protectionist elite, who had used these Constitutional prohibitions to establish domestic monopolies, because it would reduce the marketability of both its non-voting preferred stock and voting common shares,as well as limit its access to capital.

The ground is also politically favorable to a Charter amendment on economic provisions. Both Senate President Juan Ponce Enrile and Speaker Feliciano Belmonte are ready, eager, and willing to cooperate once President Aquino gives the signal on Charter change. Coming on top of his political victories on the reproductive health and sin tax laws, President Aquino can pull off what eluded even former President Estrada: removing the protectionist elements in the Constitution that benefited only the domestic monopolists.

As one analyst pointed out, it also makes geopolitical sense to liberalize the ownership limitations in the economic provisions in the Constitution. It would enable the Philippines to join the Transpacific Partnership (TPP) being promoted by the United States, since removing the Constitutional restrictions on foreign ownership is a prerequisite for membership. Being part of the TPP would strengthen the country’s relationship with the United States, increase the country’s trade access to the US market, and serve as a counterweight to an increasingly difficult and possibly hostile relationship with China.

The other thing that President Aquino has to do is to address the appreciating peso problem.

Yes, the appreciating peso — there are forecasts it will hit 39 to $1 this year — is a problem, and a huge problem at that. It is mainly affecting the incomes of millions of OFW families, and those industries — retail, real estate, education — that depend on OFW money to power their growth. Even the SM group, which counts retail as its core business, is sounding the alarm.

Exporters, particularly the BPO industry, are threatened as well. The BPO sector, which saw rival India devalue the rupee by more than 20% this year, is struggling with diminishing competitiveness due to the appreciating peso.

Not just exporters, but also domestic industry is threatened by the appreciating peso. Competing imported goods come in cheaper with the appreciating peso, undermining the viability of local manufacturing.

One big reason why investors are also reluctant to come in is that the dollar cost of our labor, already high in peso terms because of minimum wage laws and other mandated benefits, keeps going up with the appreciating peso.

The appreciating peso problem is not a Bangko Sentral problem. It’s a national government problem, because only concerted action led by the national government can solve what is clearly a major problem with no easy solutions.

The very least that President Aquino must do is to convene a national summit in order to signal his determination to address the problem and to get a consensus from the various stakeholders on how to solve this problem with both short-term and long-term solutions in mind. He must clearly signal to the markets that the national government will not allow the appreciating peso to go unchecked and threaten the nation’s strategic interests.

The statistics indicate that President Aquino’s accomplishments in the past year haven’t moved the needle in terms of investments and job growth. He has to do more. This “more” is dictated not just by what economics indicates, but also what politics dictate.

Politically, a change in the Constitution is ripe, because with the Gamboa decision and the Carpio obiter creating an adverse climate for investments, even large sections of the protectionist elite are now pushing for it. As for the exchange rate, it’s politically and economically sound to push for a more competitive exchange rate, what with the large OFW sector, the exporters, the BPO industry, and even domestic manufacturers being hurt by a strong peso.

The divorce bill is fine, and I’m for legalizing gay marriage, but President Aquino’s to-do list in 2013 must focus on liberalizing the economic provisions of the Constitution and solving the appreciating peso problem.

Calixto V. Chikiamco is a board member of the Institute for Development and Econometric Analysis.

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Loyal and repeat customers. Best kind for any business.

I have always been passionate about customer service and as I plan a new start-up venture in the Philippines, I found reading this article very timely. Loyal and repeat customers are the best customers to have. Let’s value them by providing them the service them need.

From BusinessWorld Philippines

January 03, 2013

Repeat business

By A.R. Samson

LOYALTY programs like reward miles translating into complimentary tickets and upgrades, or membership cards with price discounts from hotels and restaurants aim to make customers happy enough to keep coming back for more business. Marketing people consider repeat business a high priority, trying to achieve what they call “stickiness” with the customer. A retention effort on an existing customer is seen as more cost-effective than trying to get a new one every time. In this pursuit of repeat business, the front-liners are trained to make the customer feel important, remembering the regular patron and his habits, giving him his preferred table and making him feel comfortable by remembering his favorite dish and how it should be prepared (no potatoes for your steak again, Sir). Those in the oldest profession after landscape architecture know this instinctively — have you had dinner, sweetie?

A patronage algorithm in e-commerce looks at the pattern of books previously purchased, including titles and authors that have been browsed, and then proactively offering the tracked customer new books that follow the buyer’s taste. This form of analyzing preferences does not depend on the memory of a front liner that needs to keep a mental file of her customer. Hotels with good information systems understand their customer — king size bed again, Sir in a non-smoking floor? Of course, we will deliver your favorite morning paper before the complimentary breakfast buffet, for two. She prefers hot choco, right?

Not all businesses expect or even want customers to keep coming back. Those that avoid repeat business from the same customer include, for example, hospitals and funeral parlors. These organizations don’t really market themselves actively except to build their reputation as reliable service providers. This branding is expected to be spread by word of mouth alone, not necessarily from repeated personal experiences of the same customers. Here, frequent patronage can indicate failure or an inability to provide good solutions that work.

Certain services don’t even want to see customers at all. After selling them whatever it is they sell, whether a subscription to a service or a durable good like a car or expensive gadget, the only possible reason for a customer dropping in again has to do with a malfunction or some dissatisfaction with the service. These customers then are likely to be greeted more with dismay and irritation (you, again?) than with the warm embrace accorded to a regular patron. Heavy promotion aimed at securing customers is a different effort from actually providing service support to this once prized buyer.

Gadget retailers are not known for their after-sales eagerness to please. Those who sell the latest bragging right don’t happen to be the same ones that help customers use them properly. Anyone walking through the door of an improperly designated “customer service center” is seen as any or all of the following: a) a techno-peasant who has not gone beyond the ability to pay for the expensive gadget and figuring out the on-off switch; b) a retro consumer whose gadget is six months old and not compatible with the upgraded software system but who anyway expects it to still work; and c) someone who expects a tutorial class in using the gadget — why not just buy the notebook with the spiral back, ma’am? These customer reps may as well hang up a sign on their door, “do not disturb.”

The unfortunate reality is that these service centers have become outsourced functions staffed by the inadequately trained, short-term oriented, constantly churning, wishing-to-be-permanently-hired, and unmotivated employees employed by a contractor and who feel no affinity at all with the company whose logo serves as their store’s wallpaper. Thus the company that spends heavy advertising promoting its supposedly premium brand is eroded by the appalling customer experience provided by its contractors.

Repeat business is supposed to be the best indicator of customer satisfaction. Still, there are companies that hate to see a customer that keeps coming back. And pretty soon the customer senses this secret contempt of the company for him, as he abandons that service provider for another actually happy to see him walking through the door. A customer after all is used to feeling welcome… all the time.

Article location : business&id=63731

A different approach for using CCT

Here’s one unique idea of using the Conditional Cash Transfer (CCT) for supporting micro-enterprises owners in the Philippines. Nice idea.

From BusinessWorld Philippines

January 02, 2013

Policy finance for micro-enterprises

THE EXPERIENCE of the micro-finance industry in the Philippines has proven that there is significant potential for enterprise creation even among the poor. But micro-finance is so expensive for the end clients and is thus a mismatch for the need of growing and expanding enterprises for competitively priced funds. At the moment, the micro-finance industry is hardly able to report significant graduation of micro-enterprises (MEs) into sustainable and competitive enterprises.

In strategic terms, the micro-financing system addresses the credit access issue in the ME sector with financing cost as a trade-off. This is probably adequate for majority of MEs at the livelihood level. However, the disproportionately heavy burden of financing for more mature MEs probably results in significant opportunity losses in the sector; that is, there is a need for competitively priced funding sources for MEs that have growth and expansion potential.

A variation of the venture capital concept will address the credit cost issue in stimulating the creation of enterprises among the poor. The venture capital model is rarely applied to MEs given the cost of investment-relevant information at the ME level. While it can be argued that the rate of success at this market will probably approximate the rate of success from conventional venture capital markets, returns (recoveries plus profit) will probably be at disincentive levels. Thus, some form of affirmative action is necessary.

But if subsidies through cash transfers can be justified in terms of poverty alleviation objectives, a more directed intervention for enterprise creation is all the more justified. Admittedly, neither micro-finance credit nor a modified venture capital funding as explored here, being competitive and directed, can match the broad quick relief impact of cash-transfer models. In theory, since returns are not expected anyway given that a broader socioeconomic impact is presumed from the start, a simple cash transfer model is direct and faster implementation-wise.

On the other hand, because accountability is always an aspect of any government program, pure cash transfers are actually costlier and non-sustainable in the long run. The cost of information needed to establish necessary accountabilities in the model eventually overcomes the cost of information in more competitive and directed models (credit or venture capital). Moreover, the transaction costs for the more competitive interventions are potentially mitigated by the availability of implementers and expertise in the system. And more rigid governance systems can be introduced to ensure benefits to intended targets.

This leads to a policy finance initiative that will jump-start the graduation of MEs into viable small businesses through a modified venture capital model for which the initiator, presumably the government, must embrace the higher risk of exposure. Given the higher incentives involved, the program will have a subsidy component. However, the socioeconomic benefits are promising and more than offset the costs.

A well-designed program will recognize the different objectives of cash transfers and financing for enterprise development among the poor. Consequently, micro-finance and the modified venture capital model explored here should complement the main cash transfer model as value-enhancing interventions. Only a limited portion of the market (the poor) is a valid target for competitive interventions.

A simplified comparison of objectives would be: (a) pure conditional cash transfer (CCT) is food on the table; (b) micro-finance is extended but eventually diminishing cash flow from needs-driven micro-enterprises; and (c) modified venture capital is for competitive, opportunity-driven MEs.

Comparisons in terms of intervention strategies would be: (a) pure CCT is intervention to enhance purchasing power in the sector; (b) micro-finance is value creation by providing credit access for ME stimulation; and (c) modified venture capital is value propagation by improving competitiveness and growth and expansion opportunities for MEs with competitively priced capital.

Distortions in the micro-finance market must be avoided. Directionality and competitiveness must be assured by implementers. Assurance mechanisms should involve risk participation, albeit probably to a limited extent to encourage quick deliveries.

Returns must be defined for the participants. Expectation from profit-sharing shall mitigate the cost of transactions of implementing agencies. Benefits and returns from fund re-flows and funding cycles (leveraging effect) will help reduce the subsidy component, unlike the traditional CCT fund, which is one-directional.

There is a case to be made for a more aggressive government stance to support SMEs through a policy finance budget similar to CCTs. We can only hope it happens soon enough.

(With an AIM MBA and a Harvard MPA, the writer teaches Financial Management in the MBA program of the Ramon V. Del Rosario College of Business of De La Salle University. He is likewise president and COO of the Small Business Guarantee and Finance Corp. The views expressed above are the author’s and do not necessarily reflect the official position of De La Salle University, its faculty, and its administrators.)

Article location : finance for micro enterprises&id=63641

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