The Philippines

1. Advantages of the Philippines for SMEs and Investors

Dynamic Economy and Promising Market

Sustained growth: The Philippine economy has shown steady growth (6.7% on average before the pandemic, around 5–6% in 2024–2025), driven by domestic consumption, services, and public investments in infrastructure.
Young, English-speaking population: Over 110 million inhabitants, with a skilled, youthful workforce (median age: 25) proficient in English—an asset for business operations and service outsourcing.
Key growth sectors:
- BPO (Business Process Outsourcing): The Philippines is the world’s 2nd largest outsourcing hub (call centers, IT services, accounting), with tax incentives and a competitive workforce.
- Electronics & Manufacturing: A hub for semiconductor and electronic component production.
- Tourism: Strong rebound post-pandemic, supported by developing infrastructure.
- Renewable Energy: High potential in solar, wind, and geothermal power.
- Agri-food & Pharmaceuticals: Expanding domestic and regional demand.

Incentives and Regulatory Framework

Strategic Investment Priority Plan (SIPP): Tax holidays (up to 6 years), simplified export/import procedures, subsidized training for priority sectors (BPO, manufacturing, infrastructure, green energy).
Foreign Direct Investment (FDI) openness: The Foreign Investment Act (FIA) allows foreigners to own up to 100% equity in most sectors, except those on the “negative list” (media, some natural resources, etc.).
Investor Visa (SIRV): Granted to foreigners investing at least USD 75,000 in approved sectors, with tax perks and extended stays.
Exit from FATF grey list (Feb 2025): Improved financial reputation, boosting foreign capital inflows.

Macroeconomic Stability

Controlled public debt: Debt-to-GDP ratio declining (60.1% in 2023, target < 51% by 2028) with reduced fiscal deficit.
Managed inflation: Despite pressures from food and energy, inflation remains stable (~3–4% in 2025).

Infrastructure and Connectivity

“Build, Build, Build” program: Modernization of ports, airports, roads, and public transport, financed through public-private partnerships (PPP).
Special Economic Zones: Additional incentives (duty exemptions, tax breaks) for companies setting up operations.

2. Challenges for SMEs and Investors

Complex Business Environment

Heavy bureaucracy: Long delays in securing permits (business licenses, municipal registration), with corruption persisting in certain areas.
Sectoral restrictions: The “negative list” limits foreign access in industries such as media and large-scale mining.
Import dependency: Heavy reliance on imported energy, raw materials, and equipment—exposing firms to price and currency fluctuations.

Operational Risks

Natural disasters: Typhoons, earthquakes, and volcanic eruptions are common, requiring robust business continuity planning.
Social inequality: High income gaps and underemployment in rural regions can impact social stability and consumption patterns.
Uneven infrastructure: Outside Manila, Cebu, and Davao, transport, electricity, and internet access can be unreliable.

Competition and Costs

Competitive but volatile labor: High turnover in sectors such as BPO and retail, with rising wages in urban centers.
Logistics costs: The archipelago’s 7,500 islands create high interregional transport expenses.

Regulation and Taxation

Complex tax system: Multiple local and national taxes despite digitalization efforts.
Partial protectionism: Some industries (agriculture, retail) remain protected to favor local players.

Notable Success Stories

Engie (ex-SUEZ): Operating since 2007 in energy (power plants), leveraging partnerships with local actors.
Accenture, Teleperformance, IBM: Global BPO leaders employing tens of thousands of Filipinos thanks to a skilled, English-speaking workforce.
Unilever, Nestlé, Procter & Gamble: Long-standing presence in FMCG, benefiting from strong domestic demand and advanced distribution networks.
French SMEs: Success in cosmetics, medical equipment, and food by targeting niche markets (e.g., premium products for the growing middle class).

Key Success Factors

Local partnerships: Working with Philippine distributors or subcontractors to navigate regulations and access networks.
Cultural adaptation: Management aligned with local norms (hierarchy, personal relationships).
Leverage incentives: Utilizing tax breaks and free trade zones to reduce costs.

San Miguel Brewery: Foreign brands struggled to compete against local beer giants (e.g., Heineken had to revise its strategy).
Mining projects: Several foreign companies (Australian, Canadian) withdrew due to local opposition, administrative delays, and regulatory uncertainty.
Foreign retail: Some chains (e.g., Walmart) exited the market due to local competition and restrictions on foreign ownership in retail.