Aboitiz InfraCapital

Home / Blogs & Features / Key Factors to Consider When Setting Up a Business in the Philippines

Key Factors to Consider When Setting Up a Business in the Philippines

Blogs & Features

July 17, 2023

Group of colleagues meeting

The Philippines has emerged as one of the most promising investment destinations in the world, attracting foreign businesses seeking growth opportunities in Southeast Asia. However, before venturing into the Philippine market, it is crucial to carefully consider various factors to ensure a successful and smooth business setup. This article will highlight the important considerations foreign businesses have to take into account when looking to establish their presence in the Philippines.

Market Research and Adaptation

Conducting thorough market research is crucial to understanding the local consumer base and identifying market opportunities in the Philippines. The country’s diverse cultural and demographic factors necessitate adapting products or services to cater to local preferences. This includes understanding consumer behaviors, preferences, and purchasing power. Adapting marketing strategies to resonate with the target market and localizing product packaging and messaging can significantly enhance market penetration. As such, it is advisable to engage with local marketing agencies or to conduct focus groups and surveys to gain valuable insights into consumer preferences and to allow your business to tailor its offerings accordingly.

Regulatory and Legal Considerations

Navigating the regulatory and legal landscape is essential for a successful business setup in the Philippines. After all, businesses must complete registration and licensing processes to operate legally. The Securities and Exchange Commission (SEC) handles the registration of corporations, while the Department of Trade and Industry (DTI) manages registration for sole proprietorships and partnerships. 

Understanding tax obligations is also vital for effective financial management. Corporate income tax and value-added tax (VAT) are among the key taxes businesses should consider. Engaging with reputable tax advisors can provide guidance on compliance and potential tax incentives. As mentioned earlier, your business may be entitled to certain benefits if you choose to set up shop in a PEZA zone facility.

Protecting intellectual property rights is equally important for businesses entering the Philippine market. Engaging with the Intellectual Property Office of the Philippines (IPOPHL) can provide businesses with guidance on trademark registration, patent applications, and copyright protection. Take note that seeking appropriate legal counsel is crucial to ensure compliance with intellectual property laws and safeguarding the business’s intangible assets.

PEZA Zone Benefits

The Philippine Economic Zone Authority (PEZA) plays a vital role in promoting investments and supporting economic growth in the country. PEZA provides attractive incentives for businesses that choose to locate within its zones. These incentives include fiscal benefits such as tax exemptions, reduced customs duties, and streamlined import and export procedures. By operating within a PEZA zone, businesses can enjoy a business-friendly environment with modern infrastructure, reliable utilities, and essential support services. 

Foreign businesses also have the option to choose locations that are not only PEZA zones but are also full-service, master-planned communities. Examples of these developments are the LIMA Estate in Batangas and the Mactan Economic Zone 2 Estate and the West Cebu Estate in Cebu. These communities, developed by Aboitiz InfraCapital, combine industrial, commercial, retail, residential, and institutional spaces to serve the multifaceted needs of locators and residents. 

Successful examples of businesses operating within these economic estates and other PEZA zones include manufacturing companies, information technology firms, and business process outsourcing providers. The West Cebu Estate, in particular, has become known for being the shipbuilding capital of the Philippines, hosting 11 locators from medium to heavy industries.

Capital Acquisition

Acquiring sufficient capital is crucial for establishing a business in the Philippines. Foreign businesses have several options to explore. One common option is to seek funding from international banks or financial institutions that specialize in providing loans or lines of credit to international ventures. Another option is to explore the possibility of acquiring funds from venture capital firms and angel investors with a focus on companies that seek international expansion. Crowdfunding platforms can also be utilized to raise capital from global pools of investors, which are usually composed of a large number of people who contribute certain amounts of funds—as donations or in exchange for rewards or shares of equity. Finally, partnerships with local investors or businesses in the target country can also provide access to financing and valuable market knowledge. This last one can be especially valuable in the Philippines, where some foreign businesses are typically required by law to share equity with Filipino-owned companies.

Hiring Personnel

female applicant being interviewed by two people

The Philippine labor market offers a skilled and dynamic workforce that can contribute to the growth of businesses seeking to expand in Southeast Asia. When hiring local employees, businesses need to familiarize themselves with national labor laws and regulations to ensure compliance. The Labor Code of the Philippines, in particular, governs various aspects of employment, including wages, benefits, and working conditions. 

Developing effective recruitment strategies and partnering with reputable local recruitment agencies can help in securing the right talent for specific roles. Furthermore, for foreign employees, obtaining work permits and visas is essential. Engaging with the Bureau of Immigration simplifies the process and ensures compliance with immigration requirements, enabling businesses to bring in skilled professionals from abroad if necessary.

Overhead and Non-Overhead Expenses

Managing overhead and non-overhead expenses are crucial to maintaining cost efficiency when doing business in the Philippines. Overhead expenses include office rent, utilities, and administrative costs. Exploring cost-effective options, such as locating in areas with lower rental rates or considering shared office spaces, can help reduce these expenses. The rise of co-working spaces provides flexible and affordable solutions for businesses of all sizes. 

Non-overhead expenses, on the other hand, encompass things like production costs, logistics, and marketing expenses. If you’re doing retail or e-commerce, adopting efficient supply chain management practices, such as optimizing transportation and warehousing, can help streamline costs. It’s a good thing that the Philippines has a fast-growing e-commerce industry that is supported by an equally thriving logistics ecosystem. Additionally, leveraging digital marketing strategies, such as social media advertising and search engine optimization, can optimize marketing expenditures without compromising reach and effectiveness.

Establishing a business in the Philippines offers significant opportunities for foreign investors. By considering key elements of doing business, such as those discussed above, enterprises can position themselves for success. It is important to recognize the potential of the Philippines’ growing economy and tap into its vibrant market to achieve long-term growth and profitability.

Foreign businesses should approach their entry into the Philippines with careful planning, adaptability, and a commitment to building strong relationships within the local business community. By considering these important factors and leveraging available resources and incentives, businesses can thrive in this dynamic and promising market. The Philippines offers a conducive environment for growth, and with the right approach, foreign businesses can establish a strong foothold and reap the rewards of their investment.

More Blogs & Features

Back to Top