Philippines Roundtable: Going global

In a discussion co-hosted by HSBC, top business leaders from the Philippines talk about the challenges of international expansion and the market potential of China.

Ms Teresita Sy Coson
Vice chair, SM Investments

Mr Tony Tan Caktiong
President & CEO, Jollibee Foods

Mr Kenneth Cobunpue
Creative director and CEO, Interior Crafts of the Islands

Ms Pacita Juan
President, Figaro Coffee Company

Mr Mark Watkinson
President and CEO, HSBC Philippines

Mr Junie Velso
SVP Corporate and Institutional Banking, HSBC Philippines

Mr Wick Veloso
Treasurer and head of global markets, HSBC Philippines

The purpose of our discussion is to talk about the Philippines going global. Can you talk about your companies expansion abroad?

Tessie Sy: WeÆve established three shopping centres now in China: two in Xiamen and Jian Jiang, one in Chengdu. We are setting up another one. We exported our brand of shopping centres which was well accepted by the local government as well as the consumers.

Tony Tan Caktiong: We went out quite early, I remember, way back in 1987 we were in Brunei. And even before that, we went to Taiwan and coincidentally Henry Sy, said after one visit, ôThis is a tough market.ö We did not listen and we proceeded with our plan. We failed in Taiwan. But Brunei is still very successful for Jollibee. Right now, we are in China. We acquired a local brand three years ago. We are also in Indonesia and we are also in places with Filipinos like the USA and Hong Kong.

So you have twin strategies: one, the Philippine diaspora; and two, the
Chinese community?

Tan Caktiong: Yes. One is going after the Philippine market and the other one is going after the local market. For example, in Indonesia, we have a Chowking operation there. ItÆs purely for the locals.

Sy: Tony has already conquered the Philippines, so he has to go abroad.
Anyway, I think your Chinese operation is doing well and we would like to have your brand in our malls.

Pacita Juan: Well, like Tony and Tessie, we also set our sights on China. I first visited Shanghai in 2002, and we put up our flagship store there in 2005. So weÆve been there for two years and we cater to the mainstream China market.
The Filipinos, you know, are very proud to see us there, but the market we are mainly tapping are the Chinese educated abroad.

What makes you think your brand of coffee shop will work in China?

Juan: Well, Shanghai is a bustling city, of course, and I see that a lot of people also have been to Europe, and our concept is really a European cafT concept as opposed to other brands that are out there. So people can identify with the cafT culture of Europe even if itÆs owned by a Filipino. I mean, there is a need for a place where they can hang out, read books etc. So we have book exchanges - English language books - we have activities that cater to an international clientele. So thereÆs a space for us in China.

Kenneth, you also have been very successful in exporting.

Kenneth Cobonpue: WeÆve been exporting since 1984. My mother started the company and I went to school abroad. We used to follow the traditional business model, which was manufacturing our own designs and selling them under the labels of different foreign buyers. When I came back in 1998, I knew this was not going to last because places like China and Vietnam were getting cheaper. So I started to create my own designs under my brand. With my brand I want to make Filipino culture modern and global.

So how important to your marketing effort and brand was it that Brad Pitt
and Angelina Jolie bought your furniture?

Cobonpue: In Latin America and Asia, those names carry a lot of weight. In America and Europe, to a lesser extent.

Tan Caktiong: Have you had repeat business with them?

Cobonpue: Yes, Brad has been a repeat client for years now û over three years in fact.

Mark, do you have any words or comments on Philippine companies going international?

Mark Watkinson: The whole concept of Philippine companies going overseas, in my view, is still relatively new. But within an hour-and-a-halfÆs flight from the Philippines is one of the worldÆs most dynamic economies and that must be a very tempting opportunity for a number of Filipino companies, which have the confidence to branch overseas. So my sense is, while moving the Filipino brand overseas is relatively new, I think we will see more of it.

Junie Veloso: Just to reinforce your point, Mark. WeÆve looked at some numbers for the FDI direct investment outpost from the PhilippinesÆ first five years of this decade. ItÆs $400 million. Malaysia is about $7 billion, Thailand is about $1.3 billion, and of course, Singapore is very large at $46 billion.China is a big country where a lot of investors made some mistakes as well
as had successes. What have you learned from your experiences?

Sy: For us, China is a long-term investment. ItÆs not something where you can have quick returns. ItÆs one continent where the market is very similar across the country, which is very positive for us.
After much study, planning and conversation, we went to China in 2000.
But for the first five years, we were slow in expanding and quite cautious. In the next five years, we will accelerate our expansion because we now know how well China is doing and better understand the market, and feel comfortable that our brand of malls has a place there.

Watkinson: Do you ever see your business in China being bigger than the business in the Philippines?

Sy: Maybe in 10 years or so, it could be.

What was the biggest challenge?

Sy: In the 1990s it was more about interpreting laws and dealing with older officials. Things were more vague. But now their government understands business quite well. As a matter of fact, they learn very fast and things are right now more aligned with international thinking in the business aspect.

Tan Caktiong: EverybodyÆs in China. It is a very competitive market, but the market is big. One challenge will be the language factor because the people here donÆt really speak Mandarin that well. That will be a challenge for Filipinos going to China. Another challenge, I think, will be people.

Watkinson: Holding on to them?

Tan Caktiong: ThereÆs an interesting article I read that says, ôThereÆs a billion people in China, but you cannot find any managers.ö Everybody is in need of people. Every company is hiring managers. So thatÆs a challenge - how to train.

Watkinson: We find that with our business as well. In China, it's very, very difficult to find people who speak good English, and retention is a challenge.

Watkinson: So how do you hold on to people?

Tan Caktiong: We sell them the dream, the vision. And when it comes to getting key people, I am really the key person for hiring, it may be Shanghai or Beijing, just to talk to the candidates and convince them to join us. This is the brand. This is the dream.

J. Veloso: Jollibee has about a hundred stores in China now?

Tan Caktiong: Yes.

Juan: I only have two.

Sy: It also helps with staff retention if you bring them over here to see your operations and give them a chance to be trained in the Philippines. They see a different lifestyle here.

Juan: ThatÆs what I do too.

Wick Veloso
Tan Caktiong: Probably a balance between the two. For example, when we acquired a local brand in China, itÆs purely a local taste. ItÆs a local food. But we are now going to launch Jollibee in China. Another thing: the fact that we are from the Philippines is not a problem for the Chinese.

Watkinson: They like that?

Tan Caktiong: ItÆs not a negative. They donÆt look down on the Philippines.

ThatÆs an interesting observation. Kenneth, what were the challenges of
creating a luxury brand image for your company internationally?

Cobonpue: I think the fact that you are Filipino is an advantage and a disadvantage. They think that Philippine-made means cheap. So we have to show them value and they have to understand the story behind the product. There should be justification for the price that you put up. Our furniture is modern, organic, inspired by Asia, and made by hand. Today, weÆre pushing the natural and environmental angle.

How recently did this environmentally friendly issue become important to your firm?

Cobonpue: In the last two years, itÆs become very important. The media writes about it a lot. We have excellent green credentials and use wood from sustainable sources. In the West this is becoming more important for consumers. I actually believe, the environment angle could be a unique selling point for the Philippines. We will never be as cheap û in manufacturing terms û as China, Vietnam or Indonesia. But people are prepared to pay more for products that are natural, environmentally friendly and handmade. This is an area where the Philippines has a relative advantage. This is something we should really push.

Juan: I work with coffee, and everything else that grows around it, and a lot of our farms are growing organic produce û by default because we cannot afford fertilisers. The Philippines could be a source of organic products. Everywhere you go in our countryside, you find organic products.

Watkinson: I think thatÆs a nice opportunity for the Philippines.

Cobonpue: Talking about the whole concept of Filipino companies going global, I think there was a study made by an international group. They were trying to find out what distinct advantage the Philippines has in Asia, and I think they couldnÆt find one.
Apart from this environmental angle, I think the creative sector is something which the Philippines can really excel in û you know, entertainment, designs etc. Because of our culture, I think this sector is something that the Philippines can really compete in.
We have been left behind in high-tech manufacturing, in IT, in the industrial
market. But the creative sector has potential.Our people are creative.

Sy: YouÆre young. You can lead the way.

That brings us to the next question: how big an advantage to the Philippines is the nationÆs English language proficiency û in terms of going global?

Tan Caktiong: Outside China, our proficiency in English is really helpful.

Watkinson: I think it is a business advantage.

Sy: It is an advantage.

Watkinson: How do you find Filipino managers adapt to working in other countries?

Sy: The managers we send abroad have to possess entrepreneurial skills so as to be able to adapt to a new environment. ThatÆs the difference between managers that are sent abroad and the managers that are not.

Watkinson: But do you find a shortage of such managers?

Sy: Yes, thereÆs a shortage because sometimes, they have been so used to their comfort zones here.

Tan Caktiong: If we send people to the US, thereÆs no problem. But sending people to Africa, or somewhere less developed is more of a problem. If we send people to a country which they perceive as a better country than the Philippines, I think we have no problem.

Sy: Mobility is really going to be more and more important in the future.
Watkinson: Is there such a thing as the Filipino business culture that you take with you? For example, in Japan, itÆs very consensus-driven. WhatÆs the Filipino business culture and can you export it?

Cobonpue: I think itÆs still very Western because of the management books, training orientation and the schools here. So itÆs very American.

Juan: Maybe we can infuse more warmth.

Cobonpue: Yes, thatÆs it.

Juan: So itÆs a Western type of management but we infuse it with more warmth, caring and concern. We are concerned about our employees' families and we try to be like that in China as well. For example, we ask them if they live with their mother, because in some places, they are not even asked. I think thatÆs the Filipino culture that we try to share with the other culture, particularly in China. You try to be a little more personal. At first, they are like, ôWhy are you asking me that?ö We tell them, ôBecause this is how we are.ö

What are the issues of expanding abroad organically versus via acquisition? Would SM make an acquisition in China, for example, to really boost its presence?

Sy: We had to take an organic approach until we had a steady foothold. Right now, we do have a steady foothold. We could make acquisitions now, because we know where weÆre going. We started with Filipino managers, but now many of our management talents are Chinese. ItÆs far more Chinese now, so we have a blend of Filipino and Chinese and I think we are ready to take those steps.
But even without an acquisition, I think we can grow faster now than in the past decade. So at this point, we may not need acquisitions. China is big and we have many offers from local governments to bring our malls to their area.
Of course, we are not a sophisticated shopping centre. We belong to the B or the C class already, and in what they call second or third tier cities in China, they see us as a catalyst. So we have a lot of opportunities on the table, and I think we can still grow the way
we are growing, but maybe at a faster rate.

And for Jollibee, is it similar?

Tan Caktiong: We acquired a Chinese brand. It jumpstarted our business because they had some good local food products. If you happen to acquire a chain in nice locations, in our category, that is also an advantage.

Watkinson: What were some of the issues with making that acquisition?

Tan Caktiong: The issue is turning round their weaknesses. In this case, they only had two key products. You have to work therefore on the other products. Then there is the people side: how good are the existing people? Which one can you really train further and which not?

Watkinson: Was that a problem, or did you find out that you were lucky that your managers were good?

Tan Caktiong: We were lucky that those who we didnÆt consider good tended to leave. Also we were lucky because it was already making money. Therefore, it was not a turnaround story.

Given the firm was already profitable, did the managers question the necessity for your changes?

Tan Caktiong: We had to sell them the vision. Even though thereÆs now a hundred stores, this is very small in China. Therefore, we tell them the plan. We tell them the vision is to build several thousand stores and then they said, ôWhat are the challenges of going into that and where is my career path going exactly?ö And weÆre saying, ôThis is a three generation project.ö So how many stores can Pacita Juan really open per year to reach our goal.

How many stores do you have in the Philippines?

Tan Caktiong: ItÆs about 1,500 stores.

So youÆre talking about multiple times that many stores in China?

Tan Caktiong: Eventually.

J. Veloso: So you can really have so many stores?

Tan Caktiong: I was joking with my son because my son is now based in China, he said, ôHow long will I stay here?ö I said, ôLetÆs compute the potential of the market,ö and he started to count. ôWith several thousand stores,ö - thatÆs assuming that he starts to open 100 stores per year - he said ôIÆm gonna stay here forever.ö I said, ôNot only you, but maybe your childrenÆs children.ö

Juan: But does he like it there?

Tan Caktiong: He wanted to go to China. Initially, it was hard on him. But heÆs young, and the young like China. He adjusted.

So Chit, you have heard Jollibee has a vision of several thousand stores.
Would you make acquisitions in China too?

Juan: For us, no. I will need a lot of friendly banks to borrow from. WeÆre not public, so weÆre really growing organically in China as we did here in the Philippines almost 15 years ago. We just started growing from one store after another. But I find that for the coffee, thereÆs a big market in China, because younger people are adapting to this lifestyle habit û coffee is part of the global lifestyle.

Watkinson: But if money were no object and you were offered an acquisition opportunity in China with 20 to 30 stores of another brand, would you look to acquire it?

Juan: Once we have a foothold, for example over 60 stores in China, I think we can think about acquisitions. Just like Tony û who is my idol û we may then make an acquisition.

Watkinson: Would you run multiple brands like Tony, or would you concentrate on coffee alone?

Juan: It has its merits. Running multiple brands gives you the scale for your supply chain and everything else. So I think that is a very wise decision once you have a foothold. In the food business, itÆs wise to have multiple brands, because for example, if I go to SM, I would not ask for a hundred square meters, I would ask for a thousand then put all my brands there.

Kenneth, youÆre creating a lifestyle brand that epitomises Philippine culture. Would you look to acquire other brands in the Philippines that you think fit in with that lifestyle brand to create a luxury group?

Cobonpue: Unfortunately I donÆt think thereÆs any other International luxury lifestyle brand here in the Philippines.

Juan: And then thereÆs another lady whoÆs into lingerie, Natori?

Cobonpue: Natori. Those are brands that were founded in the US actually. The only Filipino thing about that is that the owner is Filipino, but the manufacturing, I mean, most of it is actually done outside. Aside from mine, no other brand is capitalising on the fact that it is proudly designed, made and inspired by this country.

But would you, for example, try to buy some tired foreign luxury brands in the hope of adding it up in the portfolio?

Cobonpue: No, I would probably diversify into hotels, because I think thatÆs the next step, boutiques, hotels and spaces.

Tan Caktiong: Like Philippe Starck.

Cobonpue: Yes, kind of like that.

Watkinson: Would you look into expanding on the retail side?

Cobonpue: Yes, that would be the natural course.

Watkinson: And again, that would be for the western market before the Asian market?

Cobonpue: It would always have to be first in the West and then Asia will be very easy. You convey your lifestyle brand image through the stores.

Watkinson: But itÆs quite a tough message that youÆre delivering to your up and coming Filipino entrepreneurs. You gotta make it overseas first. ItÆs quite difficult.

Cobonpue: Yeah, but thatÆs the reality.

Sy: ThatÆs the way. You make your brand known in the western country and then go back in Asia. ThatÆs the usual thing.

Tan Caktiong: I encountered some foreign friends who visited us here. They are well-to-do, and they can buy whatever they like, but here they said, ôCan you show us where we can shop for very nice Filipino bags that are so unique that even Gucci cannot make them because they don't have the materials, jewelry or local pearls.ö There must be a market here also?

Cobonpue: ThereÆs a market there.

Can the government do anything to promote these trends of the Philippine
companies going abroad? Does the government have a role here?

Juan: Under the Department of Trade and Industry, thereÆs this Centre for International Trade Exposition and Missions. In fact, I think thatÆs how I got more exposed to Shanghai and Beijing, because I went with the Investment and Mission Group with the DTI where we were introduced to government people in China. I think we can do more. As far as taking people outside the global market, they can follow the template of Singapore, because they help any business person to go overseas.

Could the government use fiscal policy as an incentive û for example, tax
holidays on incomes earned from acquired companies?

W. Veloso: We currently have fiscal incentives such as income tax holiday and tax credits applicable to investments made in the Philippines, and these can also be applied to offshore investments. Other areas that can be explored are the following - reduce restriction on local currency, guarantee loans to reduce borrowing cost, no double taxation on income earned from abroad, and have a special facility and its hedge for foreign investments.

Sy: That would be nice.

Watkinson: Could the government have done better as far as the trips or visits abroad? How could that be more effective, or was it great?

Juan: It was good, but a lot of things require follow-through. You would have to have enough resolve to follow through. So the introductions were okay, but you know, it would help if they could really hold your hand until youÆre really set and turnkey, up and running. For us, it was a good exposure but a lot of personal and professional resolve was needed to see the job through. More help would be useful.

I, for example, come from Chinese roots but I donÆt speak Chinese like Tony and
Tessie do. So I have to get translators all the time. All the contracts are in Chinese. So you can have a translator in English, but you never know what is written in Chinese. So those are the challenges that any new person would face stepping into China. And things change everyday. Oh, is that allowed now? Oh, itÆs no longer allowed, you know. You have to be in step with the changing laws. Our two stores are five minutes away from each other, but we are in two different districts and we go by different rules.

Tan Caktiong: The embassy could play more of a role in the business side. These embassies should have this business mentality.

What about promoting the Philippines brand. The Malaysians have obviously
been highly successful using their æMalaysia, truly AsiaÆ campaign. Does the government here need to promote the Philippines better at the international level?

Cobonpue: The government doesnÆt really have any direction on which industry, which field it can compete in. Right now, they are promoting everything from food to garments, to textiles, to IT. ThatÆs good if you have a big, big advertising budget, but the Philippine government has a very limited budget, so what happens is, the message is dispersed.

Sy: They want to satisfy everybody.

Watkinson: I spent four years in Dubai and itÆs amazing how the Dubai brand has been promoted. But I would love to ask everybody just one final question on the table. If a Philippine company is looking at going abroad, whatÆs the one piece of advice that you would give them?

Tan Caktiong: I think the advice would be, if you're going abroad, what do you have to offer?

Watkinson: Why are you different?

Tan Caktiong: Probably, another thing to add, aside from what you are offering, is you have to assume the competition is much, much more intense than in the local market. Our market is competitive enough but not to the same extent as going offshore.

Sy: Because the Philippines is a small market compared to other countries, a lot of other foreign brands are not interested in coming here. So weÆre comfortable û by which I mean the local brand is very comfortable in
our market. But going abroad, itÆs very different really.

Watkinson: So be prepared, and not too comfortable. ThatÆs a good message.

This story originally appeared in the October issue of FinanceAsia magazine.
¬ Haymarket Media Limited. All rights reserved.
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