Chinese firms eye Philippines as potential site for expansion

MANILA, Philippines – With its white, sandy beaches, the Philippines has done well to attract a growing number of Chinese tourists in recent years. But beyond the relaxing resorts, the friendly island-nation is stirring – furiously – and becoming ever more attractive to Chinese companies, according to insight from global commercial real estate firm JLL.

As Chinese companies look for new growth channels outside of their home markets, overseas expansion is opening doors for nearby markets such as the Philippines, said P. Ryan Isip, National Director at JLL, who is presently in Manila.  Isip was based in Beijing, where he spent just shy of a decade helping Chinese and foreign companies expand their footprint in China.

“Chinese companies not presently in Manila are now opening offices here and all over the place,” Isip said adding that “Chinese corporates realize that real estate is an essential dimension of corporate operations; it’s important for boosting corporate image, workplace productivity, as well as attracting and retaining talent.”

“Setting up an office in the Philippines makes sense, given the close proximity to China, and that opportunities for expansion in the market can serve as a gateway to Southeast Asia and more,” Isip said.

The sentiment was most recently echoed by a Bloomberg report released earlier this year, which named the Philippines as the second-fastest growing market in Asia after China.

“Compared to other countries in the region, the Philippines has a relatively large population, which boasts of a growing middle-class and an increasingly professional workforce,” Isip said. “The cost of doing business is low, and the country has a very business-friendly environment; this is proven by the huge presence of reputable foreign companies that already operate large back-office functions here.”

Tencent and DiDi Chu Xing who are exploring the Philippines, are among the latest Chinese companies to look into setting up operations in Manila, joining the likes of carmakers BAIC and Chery, global communications and telecommunications technology solutions provider Huawei, and China State Construction.

“Overseas growth is especially key for successful companies looking to increase their global reach and stay ahead of the competition, and this is especially true in China, where a slowing economy at home is being felt and the implications of this cannot be ignored,” Steven McCord, head of Research for North China at JLL, said.

“Many well-known Chinese brands have thrived in the protected environment of the mainland,” he said. “But they are now venturing out of the country into more competitive environments backed up by revenues from the past decade.”

McCord, who is based in Beijing, also noted that opportunities for Chinese companies in the Philippines are boundless considering that “mainland companies can benefit from opportunities to bring not only manufacturing to the Philippines, but also to sell Chinese-branded products.”

Meanwhile, Chinese giants like Huawei and appliance manufacturer Haier have seen huge growth in China.

“Therefore, to sustain a certain level of growth, these companies are going overseas,” McCord said. “Being so close to the mainland, the Philippines is a logical place to do business, and the presence of Chinese firms is already being felt in office markets both locally and elsewhere in the region.”

Moreover, the 2015 list of the top Global Fortune 500 companies included 104 Chinese companies, 51 of which are based in Beijing, indicating that potential demand for Chinese expansion abroad appears healthy.

“Under the pressure of a slower economy, Chinese corporates are expanding in the Philippines because they have the ability to do so as part of their diversification,” Isip said. “They can only penetrate so much of their own market, while here they are presented with a new market and new opportunities.

“If Chinese companies want to continue growing, they will need to look at other countries for investment, beyond the typical US and UK markets, which are highly saturated and competitive,” adds McCord said. “Less developed markets like the Philippines still provide attractive options in terms of balancing the portfolio.”

Local attitudes should also support more Chinese investment in the country.

“Take for example, Chinese goods,” Isip said. “Chinese goods are welcomed in the Philippines, and we see imported goods from China readily gobbled up. As companies set up shop in the Philippines and establish a strong local presence, they will enjoy ready acceptance by the market.”

Isip added the local ethnic Chinese population also plays well into the equation.

“There’s already a sizeable ethnic Chinese population here, so, we have an existing population that speaks some dialects of Chinese, and this makes it easier for parts of the community to communicate with people from mainland China,” Isip said. “On top of that, more and more tourists from China are flocking to our beaches, and these visits help to introduce more Chinese people to our culture and what we have to offer as a country, which can also be applied in a larger context to the business world,”         he concluded.