PHILIPPINES MARKET OUTLOOK - Business Sweden · PHILIPPINES MARKET OUTLOOK BUSINESS SWEDEN...

24
CONFIDENTIAL FOR INTERNAL USE WITHIN CLIENT COMPANY ONLY Draft for discussion PHILIPPINES MARKET OUTLOOK BUSINESS SWEDEN Philippines 2018

Transcript of PHILIPPINES MARKET OUTLOOK - Business Sweden · PHILIPPINES MARKET OUTLOOK BUSINESS SWEDEN...

Page 1: PHILIPPINES MARKET OUTLOOK - Business Sweden · PHILIPPINES MARKET OUTLOOK BUSINESS SWEDEN Philippines ... 5 Tourism & hospitality ... speaking population is a key competitive advantage

CONFIDENTIALFOR INTERNAL USE WITHINCLIENT COMPANY ONLY

Draft – for discussion

PHILIPPINES MARKET OUTLOOKBUSINESS SWEDEN

Philippines

2018

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BUSINESS SWEDEN 19 JANUARY, 2018 2

FOREWORD

Ulf WennblomCountry Manager

Philippines

Harald FriesAmbassador of Sweden

to the Philippines

The Philippine economy offers robust and high growth fueled by a growing middle class, favourable

demographics, and large infrastructure projects that are now taking off. It is important to keep in

mind that the economy is still developing, that poverty is very much present and that most of the

economic development so far has been concentrated to Manila. To deal with this the current

government focuses on poverty reduction through regional growth and large infrastructure

investments.

Business opportunities in the Philippines are large and many, and lie in infrastructure development,

manufacturing, retail and services. The country is often referred to as a high risk market to do

business in, but we believe the opportunities outpace the risks as long as a market entry is well

prepared and well executed by focusing on best practise factors from leading companies. This is

proven by Swedish companies that are established in the Philippine experience high and profitable

growth.

We believe that now is a good timing to enter the Philippine market. But before you enter make

sure to do a proper analysis and set a suitable strategy. We hope that this report will give you new

and valuable insights as well as direction in that process.

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Philippines economy and outlook

Swedish business in the Philippines

Our point of view

BUSINESS SWEDEN 19 JANUARY, 2018 3

AGENDA

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SOURCE: ADB, BDO, PSA, BUSINESS SWEDEN ANALYSIS

20107,6%

20113,7%

20126,7%

20137,1% 2014

6,1%20156,1%

20166,9%

20176,8%

20186,7%

GDP GROWTH (CONSTANT PRICES)

The Philippines is an island nation with 105 million people, the second largest

population in the Asean region

The historic annual growth (CAGR) of the Philippines is 4 %. The new long term

growth trajectory is at 6.6 %. By that, Philippines is among the fastest growing

economies globally. And, the economy is robust with 76 consecutive quarters of growth

Key underlying growth factors are a growing middle class, the fact that the Philippines

has the youngest population globally (24,6 years), almost half the median age of

Sweden, and the massive infrastructure projects that are now taking off

PHILIPPINES IS AMONG THE FASTEST GROWING MARKETS GLOBALLY

0

50

100

150

200

250

300

196

6

196

9

197

2

197

5

197

8

198

1

198

4

198

7

199

0

199

3

199

6

199

9

200

2

200

5

200

8

201

1

201

4

201

7

2011 – 2017

CAGR of 6.6%

GDP CONSTANT PRICES, BUSD

Summary Market OutlookSwedish business in the

PhilippinesOur point of view

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BUSINESS SWEDEN 19 JANUARY, 2018 5

PUTTING THE PHILIPPINES INTO PERSPECTIVE

SOURCE: IMF, UN

GDP B$ & Growth 2016 GDP / Capita (USD) Geography

Philippines is an island

nation with 7107islands and a land size

that is 2/3 of

Sweden

Sweden has 0.3 %

and Thailand 1.1 %

Infant mortality rate Urban population Individuals using internet Seats held by women in

national parliaments

Thailand has 6.1 %

and Sweden 43.6 %

27,2%

PHILIPPINES IS CONSIDERED AS A LOWER MIDDLE INCOME COUNTRY, IN NEED OF DEVELOPMENT

Median age

2.3%

Summary Market OutlookSwedish business in the

PhilippinesOur point of view

0%

2%

4%

6%

8%

0

200

400

600

800

1 000

1 200

2 300

3 000

6 000

Vietnam Philippines Thailand

25

4147

Philippines Sweden Japan

44%

75%

86%

Philippines Malaysia Sweden

40%48%

93%

Philippines Vietnam Sweden

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NATIONAL CAPITAL REGION

CORDILLERA ADMINISTRATIVE REGION

ILOCOS

CAGAYAN VALLEY

CENTRAL LUZON

CALABARZON

MIMAROPA REGION

BICOL

WESTERN VISAYAS

CENTRAL VISAYAS

EASTERN VISAYAS

ZAMBOANGA PENINSULA

NORTHERN MINDANAO

DAVAO REGION

SOCCSKSARGEN

CARAGA

AUTONOMOUS REGION IN MUSLIM MINDANAO

-1%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

11%

12%

0 1 000 2 000 3 000 4 000 5 000 6 000

GD

P G

RO

WT

H (

CA

GR

20

14

-20

16)

GDP PER CAPITA (2016, CONSTANT YR 2000 PRICES)

BUBBLE SIZE REPRESENT SIZE OF GDP IN 2016

BUSINESS SWEDEN 6

THE ECONOMY IS CONCENTRATED IN MANILA, THE OPPORTUNITY LIES IN REGIONAL GROWTH

SOURCE: IMF, PSA

2017 2017

Summary Market OutlookSwedish business in the

PhilippinesOur point of view

19 JANUARY, 2018

National GDP

growth 2016

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Manufacturing, construction and services show strong

growth, and are large and important sectors

Agriculture is a sector that has started to develop slowly,

with many challenges such as low efficiency. The sector

is a key target for the government to develop

Mining has experienced downturns due to bans and

legislative barriers, but the sector is showing positive

signs

BUSINESS SWEDEN 19 JANUARY, 2018 7

PRIVATE INVESTMENTS AND GOVERNMENT SPENDING ACCELERATE ECONOMIC EXPANSION

Investments and Gov spending leads expansion

Private consumption fuelled by the growing middle

class and young population forms the foundation of the

economic growth

Key drivers for the current and future expansion of the

economy, factors that make a difference, are private

sector investments and government spending

Another challenge is to reverse the current goods trade

deficit, to boost exports by strengthening the

manufacturing industry

Manuf., constr. & services shows robust high growth

SERVICES, MANUFACTURING AND CONSTRUCTION ARE THE KEY INDUSTRIES FOR GROWTH

0%

5%

10%

15%

20%

25%

Q1 Q2 16 Q3 Q4 Q1 17 Q2 Q3

Yo

Ygro

wth

Priv consumption

Gov spending

Capital formation

0%

5%

10%

15%

20%

Q1 Q2 16 Q3 Q4 Q1 17 Q2 17 Q3 17

Yo

YG

row

th

Agri, Fishery, Forestry Mining & QuarryingManufacturing ConstructionUtilities Services

SOURCE: ADB, BDO, BUSINESS SWEDEN ANALYSIS

Summary Market OutlookSwedish business in the

PhilippinesOur point of view

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The Philippine government has committed up to USD 180 billion in

investments until 2022 in 75 projects primarily in railways, roads &

bridges, airports, new city development and mass transit systems. The

program labeled Build Build Build aims at supporting economic growth

and solve major infrastructure hurdles

Development in 2018 and 2019 will be crucial to regain trust among the

public for Build Build Build, as previous administrations have made

similar commitments without delivering on them

The Asian Development Bank (ADB) is supporting Build Build Build

through a USD 100 million loan labeled the Infrastructure Preparation

and Innovation Facility (IPIF), and with a USD 5 million technical

assistance grant to help the government recruit experts for the projects

and for capacity building in implementing agencies

Infrastructure projects worth about USD 3.8 billion will be prepared

under the IPIF and is expected to shorten start-up periods for priority

infrastructure projects. Including complex road networks, long-span

bridges, flood control and urban water systems, and crucial public

transport, port, airport, and railway investments

The IPIF will support only a small slice of the huge infrastructure

investment needed, but it will allow the government to accelerate

project implementation and bring in international expertise and

innovative practice

BUSINESS SWEDEN

“BUILD BUILD BUILD”, THE GOLDEN AGE OF INFRASTRUCTURE

UPCOMING PROJECTS

Rail

Road / bridges

Airports

New cities

BRT

Build Build

Build project

scope

Summary Market OutlookSwedish business in the

PhilippinesOur point of view

14,0

1,2

1,0

0,3

Bulacan Airport

Clark-Subic Rail

East-West RailProject

Clark InternationalAirport Expansion…

Projects to target in 2018 (BUSD)

SOURCE: PSE, BUSINESS SWEDEN ANALYSIS

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The Philippine private sector is dominated by conglomerates such as San

Miguel, SM, JG Summit, Ayala and Pangilinan (MVP, PLDT). Ownership

structures are complex and sometimes non transparent. These companies

are large in global comparison. It is almost impossible to do business in

the Philippines without having them as customers and/or partners. These

companies invest primarily in energy, manufacturing, real estate and

infrastructure.

The trend is to go outside Philippines. Ayala has made several strategic

investments in the automotive supply chain in Europe. In the Philippines,

the company is investing USD 150 million in the automotive sector through

its electronics subsidiary IMI. Furthermore, Ayala has a JV plant with KTM

motorcycles in the Philippines, to use as export base in Asia.

An indicator of the maturity of the private sector is the capitalization of the

stock exchange. The capitalization of the Philippines Stock Exchange is

comparatively low, almost half of Thailand and 1/5 of Stockholm OMX.

Sweden has 10 % of the population of Philippines and OMX is still 5

times larger! It is clearly room for growth in the Philippines.

To enable a more flourishing private sector, the Government has an

inclusive growth agenda to create better conditions for SMEs

BUSINESS SWEDEN

THE PRIVATE SECTOR IS STILL DOMINATED BY A FEW COMPANIES

KEY FACTS

0 10 20 30

Construction

Admin

Hospitality

Infrastructure

Real Estate

Manufacturing

Energy

252450

1 300

PSE SET OMX

Market cap BUSD

Largest companies by revenue 2016, BUSD

Conglomerates industries (BUSD)

SOURCE: PSE, BUSINESS SWEDEN ANALYSIS

Summary Market OutlookSwedish business in the

PhilippinesOur point of view

4,0

4,7

4,7

5,0

5,8

13,4

PLDT

Ayala

JG Summit Holdings

Manila Electric

SM Investments

San Miguel

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High potential sectors that are especially promoted by the Government for all investors include manufacturing,

infrastructure and IT & BPM. Investments outside Manila are also heavily promoted, especially on Mindanao.

The country is quite open for foreign investments, and the Government is pushing for more foreign investments

by reducing existing restrictions on foreign ownership.

Foreign investors may set up businesses through the Board of Investment (BOI), in export zones (PEZA) and in

specific free trade zones

If BOI conditions are met, BOI offers incentives such as lower import tariffs and income tax holidays

In PEZA zones, VAT exemption is also an incentive as the majority of goods are produced for exports

Total investment levels and FDI have shown a solid development in recent years. FDI is almost 30 % of all

PEZA and BOI approved investments. Measuring in monetary terms, manufacturing and utilities are the largest

sectors, yet in number of employed people the services sector is likely to be in top.

BUSINESS SWEDEN 19 JANUARY, 2018 10

FOREIGN INVESTMENTS EXPECTED TO INCREASE AS BARRIERS ARE MOUNTED DOWN

INVESTMENTS, BUSD (PEZA AND BOI) 2016 TOP ORIGIN

SOURCE: BUSINESS SWEDEN ANALYSIS, BOI, UNCTAD

0

200

400

600

800

0

200

400

600

800

2012 2013 2014 2015 2016

Total FDI

Rank Country

1 Netherlands

2 Australia

3 USA

4 Japan

5 Singapore

2016 TOP SECTORS

Rank Top sectors

1 Manufacturing

2 Utilities

3 Real Estate

4 Transportation & Logistics

5 Tourism & hospitality

Summary Market OutlookSwedish business in the

PhilippinesOur point of view

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The median age of the Filipinos is only 24.6 years, among the lowest in global comparison

With a population growth close to 2 %, driven by birth rates, the Philippines is expected to continue to have a young

population in an elsewhere aging world. On top of that, most of the young are English speakers. The young English

speaking population is a key competitive advantage for the service industry, especially for the BPO industry.

The middle class is growing at high pace, and is expected to reach over 50 million in 2020. This safeguards strong

consumer demand for many years ahead.

A challenge though is that the difference between the rich and the poor is increasing, a challenge not limited to the

Philippines but common across Southeast Asia. In the 10-point Socioeconomic Agenda, President Rodrigo Duterte

envisioned the reduction of poverty from 21.6% in 2015 to 13%-15% by 2022.

BUSINESS SWEDEN

DEMOGRAPHICS AND A GROWING MIDDLE CLASS SUPPORT INVESTMENTS AND CONSUMER SPENDING

SOURCE: BUSINESS SWEDEN ANALYSIS, BOI, UNCTAD, : PHILIPPINES INFRASTRUCTURE TRANSPARENCY PORTAL

0 10 20 30 40 50

Philippines

China

Thailand

Sweden

Japan

DEMOGRAPHICS (MEDIAN AGE)DAILY CONSUMPTION PER PERSON, SHARE OF POPULATION

0%

20%

40%

60%

80%

100%

2010 2020 2030

< $ 1,25 (poverty)

$ 2-4 (lower-middle class)

$ 4-10 (middle-class)

$ 10-20 (upper-middle class)

More than $ 20 (rich)

CONSUMER

CLASS

Summary Market OutlookSwedish business in the

PhilippinesOur point of view

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0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

0

10

20

30

40

50

60

70

80

90

2012 2013 2014 2015 2016 2017f 2018f 2019f 2020f 2021f 2022f

US

D b

illio

n

Tourism BPO revenue OFW remittances % of nominal GDP

BUSINESS SWEDEN 19 JANUARY, 2018 12

REVENUES FROM OVERSEAS FUEL INVESTMENTS AND SPENDING IN THE PHILIPPINES

SOURCE: BDO BANK

Summary Market OutlookSwedish business in the

PhilippinesOur point of view

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BUSINESS SWEDEN 19 JANUARY, 2018 13

THE PHILIPPINES IS DEPENDANT ON GOODS IMPORTS AND SERVICES EXPORTS

Export vs import (Goods, BUSD) Key goods trading partners (BUSD)

-50

0

50

100

150

2012 2013 2014 2015 2016 2017f

Export Import Balance

SOURCE: ADB, BDO, BUSINESS SWEDEN ANALYSIS, EU DELEGATION IN MANILA

0 2 4 6 8

Food & live animals

Other machinery

Transport equipment

Office & telec. Equipm.

Chemicals

20162015

Key EU exports to the Philippines (BUSD)Export vs import (Services, BUSD)

0

10

20

30

40

50

2012 2013 2014 2015 2016 2017f

Export Import Balance

-5%

0%

5%

10%

0

2

4

6

8

10

12

China Japan US EU

2016 2017f YoY Growth

Summary Market OutlookSwedish business in the

PhilippinesOur point of view

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0

2000

4000

6000

8000

10000

12000

14000

16000

2012 2013 2014 2015 2016 2017f

US

D b

iilio

n

BUSINESS SWEDEN 19 JANUARY, 2018 14

SOURCE: BMI

CAGR

6.9 %

9.7 %

4.0 %

12.8 %

4.7 %

0.5 %

SERVICES IS THE LARGEST SECTOR, MANUFACTURING EXPECTED TO BE THE NEXT DRIVER

MINING – potential lies in stable and

predictable rules governing the sector

UTILITIES – Almost completely privatized

sector (90 %) with many players in the

market

CONSTRUCTION – Road, rail, air, flood

control, power, residential and

commercial construction to drive growth

AGRICULTURE – focus sector of the

government. Key is to increase size of

farms and thereby increase efficiency

MANUFACTURING – F&B, chemicals

and electronics largest. Chemicals, pulp

& paper and metals with highest growth

SERVICES – Services production (incl.

BPO), retail and real estate are the

largest sectors and still have high growth

SECTORS

Summary Market OutlookSwedish business in the

PhilippinesOur point of view

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Philippines economy and outlook

Swedish business in the Philippines

Our point of view

BUSINESS SWEDEN 19 JANUARY, 2018 15

AGENDA

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BUSINESS SWEDEN 19 JANUARY, 2018 16

SWEDISH EXPORT FIGURES INDICATE THAT THERE IS ROOM FOR GROWTH

Swedish Exports vs imports (Goods, MSEK) Nordic trading with Philippines (MEUR)

-500

0

500

1 000

1 500

2012 2013 2014 2015 2016 2017f

Export Import Balance

SOURCE: ADB, BDO, BUSINESS SWEDEN ANALYSIS, SCB

0 100 200 300 400 500

Pulp & paper

Telecom

Industrial machinery and…

Automotive total

Pharma

Heating and cooling…

Vegitable oil and fats

2015

2016

What Sweden exports Sweden has a trade surplus with the Philippines

Trade has been increasing slightly in recent years

Finland and Denmark have both larger and higher

growth in exports than Sweden, indicating that there

is room for growth

Sweden primarily exports pulp & paper, telecom

equipment, industrial machinery and automotive

products

Automotive and industrial machinery have seen the

highest growth in recent years

-40%

-20%

0%

20%

40%

0

50

100

150

200

Finland Denmark Sweden Norway

2016 2017f YTD growth

Summary Market OutlookSwedish business in the

PhilippinesOur point of view

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Approximately 40 Swedish companies are present in the Philippines, whereof some 20 are

multinationals

Several Swedish companies have a long history in the Philippines, being present here more than 20

years. Swedish Match is the company with the longest history of almost 100 years of local presence

Swedish investments since 2012 are approximately at SEK 120 million, and are mainly in

manufacturing and services

The primary customer group for Swedish companies is B2B*

The combined annual Swedish revenue on the Philippine market is SEK 4 to 5 billion*

The average Swedish sales growth in the recent 3 years was 19 % per year*

The forecasted average Swedish growth rate in the coming 3 years is 15 % per year*

SWEDISH REVENUE IN

THE PHILIPPINES BSEK

GROWTH - CAGR

4-519%

15%

2015-2017 2018-2020

SWEDISH INVESTMENTS (USD MILLION) AND FDI

STOCK (2012-2017) (BOI & PEZA)

0

2

4

6

8Manufacturing

Services production

ICT

USD 14 million

SOURCE: BUSINESS SWEDEN ANALYSIS, BOI* INTERVIEWS WITH 14 SWEDISH COMPANIES WITH LOCAL PRESENCE IN THE PHILIPPINES

Summary Market OutlookSwedish business in the

PhilippinesOur point of view

SWEDISH COMPANIES ARE DOING WELL IN THE PHILIPPINES BUT INVESTMENTS ARE LOW

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020406080

100120140160180

Starting abusiness

GettingElectricity

GettingCredit

ProtectingMinority

Investors

Paying taxes Tradingacrossborders

Enforcingcontracts

Worl

d r

an

kin

g

Corruption is widespread in the Philippines and common in both the

private and public sector

Swedish companies perceive that regulations and processes for

taxation and VAT is handled in a non transparent way

Lack of sufficient infrastructure nationwide limits efficient logistics flows

and constantly poses large barriers in Manila in the form of traffic

congestion

Bureaucracy in the public and private sector slows down processes

114th place in World Bank’s ease of doing business index, with very low

ranking in categories “starting business”, “protection of minority

interests” and “enforcement of contracts”

BUSINESS SWEDEN

THERE ARE SEVERAL PERCEIVED CHALLENGES

SOURCE:WORLD BANK, BUSINESS SWEDEN ANALYSIS

KEY PERCEIVED CHALLENGES AMONG SWEDISH BUSINESSES

CORRUPTION

INFRASTRUCTURE

CONSTRAINTS

BUREAUCRACY

TAXATION & VAT

World Bank ease of doing business ranking

among 190 countries in 2018

114 rank

Summary Market OutlookSwedish business in the

PhilippinesOur point of view

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BUSINESS SWEDEN 19 JANUARY, 2018 19

THE RECIPE AMONG SUCCESSFUL SWEDISH COMPANIES

SOURCE: BUSINESS SWEDEN ANALYSIS

PARTNER WITH THE RIGHT PEOPLE- From start. Including employees, business

partners, advisors, lawyers, clients etc..

BUILD TRUST - By strong local presence, either through your own

local company or a strong local partner that

represents your company with strong commitment

and dedication

BE PATIENT- Living and working in the Philippines can

sometimes feel like being in a roller coaster.

However, the economy is resilient and it is important

to be patient and have a long term focus to

overcome the perceived short term hurdles

INVEST IN PEOPLE- Salaries are high and in specific cases on par with

Singapore levels. Education is needed even if

experienced people are recruited

Summary Market OutlookSwedish business in the

PhilippinesOur point of view

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Philippines economy and outlook

Swedish business in the Philippines

Our point of view

BUSINESS SWEDEN 19 JANUARY, 2018 20

AGENDA

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BUSINESS SWEDEN 19 JANUARY, 2018 21

THE MARKET BRINGS OPPORTUNITIES IN BOTH SALES AND PRODUCTION FOR SWEDISH COMPANIES

SOURCE: BUSINESS SWEDEN ANALYSIS

Materials, solutions and

equipment for the

manufacturing sector

Infrastructure solutions:• Urban, road, rail and air

transportation

• Energy & power

• Waste water

• Flood control

• Public safety

• Telecom

Retail, consumer

products and food

Pharma, healthcare and

medical devices

Agriculture products &

solutions

Services

production• Contact centre & BPO

• Global In-house

centres

• IT services

• Healthcare information

management

• Animation and Game

development

Manufacturing, use

Philippines as hub for

export & domestic sales

Construction equipment

and solutions

THESE OPPORTUNITIES ARE NOT ONLY IN MANILA, BUT SPREAD OUT IN THE REGIONS

Summary Market OutlookSwedish business in the

PhilippinesOur point of view

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BUSINESS SWEDEN 19 JANUARY, 2018 22

NOW IS A GOOD TIME TO ENTER THE PHILIPPINES

SOURCE: BUSINESS SWEDEN ANALYSIS

Reasons to enter

Solid economic fundamentals – high and stable growth

The large infrastructure programs that are now taking off

Optimal demographics – 100+ million with 50 % being under 25 years

Developing and growing manufacturing sector

Leverage the increased presence of Team Sweden

Impediments

Political situation

Corruption

Infrastructure

Bureaucracy

Summary Market OutlookSwedish business in the

PhilippinesOur point of view

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BUSINESS SWEDEN 19 JANUARY, 2018 23

FIVE STEPS FOR A SUCCESSFUL MARKET ENTRY IN THE PHILIPPINES

SOURCE: BUSINESS SWEDEN ANALYSIS

Build a good understanding of your market before entry

Develop a market entry strategy to build trust, through local presence and / or partners

Partner with the right people from start

Train your people and partners to fulfill the needs of the clients

Keep patience and maintain continuity when the market conditions changes

1

2

3

4

5

Summary Market OutlookSwedish business in the

PhilippinesOur point of view

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BUSINESS SWEDEN 19 JANUARY, 2018 24

THANK YOU! CONTACT INFO

+63 917 841 7784

[email protected]

www.business-sweden.se

Ulf Wennblom, Country Manager

Philippines at Business Sweden

Please contact Business Sweden

if you have any questions

regarding this report, or if you need

support in growing your business

internationally, in Philippines or in

any of the other 50+ locations

where we are represented in the

world. We advise our clients, from

the smallest start-ups to the global

corporations, in all steps of their

international endeavours. We have

the network and can complement

your internal resources in an

efficient way, worldwide.