US companies to stay put but hold expansion plans

January 30, 2017 at 11:58

By BERNIE CAHILES-MAGKILAT | January 28, 2017

American companies in the Philippines are not leaving, but their expansion programs in the country are put on hold or are being delayed because of “back to back” uncertainties, the American Chamber of Commerce and Industry (AmCham) said yesterday.

AmCham Senior Adviser John Forbes said during a speech at the “Brewing @AIM” that the uncertainties first came from President Duterte when he made pronouncements in a speech before businessmen in Beijing of Philippines’ separation from the US that sort of rattled off American businessmen.

Forbes, however, said that government officials took turns to explain the President’s message to mean diversification of relationships, not severance of ties with the US and that American businessmen are still welcomed to invest in the Philippines.

Forbes noted that the US, the third largest Philippine trading partner, invested over $5 billion in one year.

The second uncertainty has been ushered in by the new American President Donald Trump, who issued an order to exit from the Trans Pacific Participation and other moves towards protectionism. Trump has also announced plans to bring back jobs to the US by banning US companies to outsourcing jobs abroad and manufacturers to return to US. He also announced other protectionist policies like the renegotiation of the North American Free Trade Agreement (NAFTA) with the intention of imposing tariffs on Mexican products entering the US market. Trump is also pushing for the passage of the “End of Offshoring Act.”

Forbes labeled this as “back to back” uncertainties from both sides. “My crystal ball is cloudy,” he stressed stressing that these two uncertainties make companies more cautious about the future.

“Investors want investment stability in a country so expansions of investments are expected to slowdown or delay, but not withdrawals,” he said.

Forbes further noted that there had been very few cases of American firms leaving the Philippines. He recalled the case of Colgate-Palmolive which decision to leave its factory operation was due to a labor issue. Another company that left the country was Intel. The last one was Ford Motors because the local auto parts supply network failed to develop, making it costly for sourcing of parts for its assembly operation.

Forbes did not identify which specific industries are going to delay their investment program saying this could apply generally but he cited the recent pronouncement of the Philippine Economic Zone Authority that  IT-BPO firms were putting on hold expansion activities due to Trump’s protectionist policy and his being vocal against offshoring American jobs.

BPO firms, he said, maybe getting cautious because of the perception that Philippines may not be a reliable place to do or buy from. Clients of the BPO firms may not also like it also to outsource in the Philippines because of Trump’s policies or what he called as the “Trump Effect.”

Trump is pushing for the passage of the “End of Offshoring Act” in the first 100 days of his administration. Forbes, however, noted how could American firms stop their offshoring activities when it is more profitable to do it in the Philippines.

BPOs can go to India, which is 20 percent cheaper than the Philippines, but he said they are not happy with the quality of results they get from India.  At least 70 percent or $15 billion of total Philippine BPO revenues come from the US.

Despite the air of uncertainty, Forbes remained optimistic because the historical ties of the US-Philippines are extremely strong. If ever, he said, it will take time to sort out modified relationships.

The Trump administration, he said, will have to realize that 95 percent of consumers of American products are overseas and only the remaining 5 percent are in America.

“Hopefully, US policies elsewhere in Asia, including the Philippines, will not change radically,” he said.

In the meantime, he added, the Philippines just have to exert more effort to become competitive.