The Philippines is one of the biggest countries in Southeast Asia, both in terms of land size and population. Having around 7,000 islands and a rapidly growing economy, Philippines is set to become a leading provider in the service sector.
As a result, more and more foreign companies seek to enter the market, trying to profit from the growing middle class. Yet entering the Philippines market can be challenging, both in terms of taxation, product regulations, and incorporations.
In this article, we give you a helping hand and cover the most relevant information.
- Market Entry Strategy
- Philippines Market Entry Obstacles
- Market Entry Research
Market Entry Strategy
A market entry can mean many different things depending on your level of commitment, sales goals, and company size.
While some companies have vast goals to enter the Philippines’ market and capture large market shares, some just want to dip their feet.
We can generally divide market entries into three different phases. Namely, initial marketing campaigns, cross-border eCommerce setups, and domestic eCommerce operations. Let’s review each one.
Initial Marketing Campaigns
Initial marketing campaigns are conducted to test the market and warm up leads. In short, this might be the reason due to low brand awareness and to confirm the interest. There are options when doing initial marketing campaigns.
Online campaigns are common, as well as offline campaigns if you have the capabilities to do so.
Besides, attending trade fairs, setting up pop events, and hiring key-opinion-leaders become increasingly popular to increase local brand awareness.
Initial marketing campaigns should preferably be managed in collaboration with third-party services providers that have a local presence in The Philippines and understand the market.
Cross-border eCommerce becomes increasingly popular due to the ease of managing sales and entering new markets. China has received much attention in recent years with the launch of websites like Tmall Global and JD Worldwide.
Cross-border eCommerce is significantly smaller in The Philippines and locals prefer to buy from local sellers. This can be both bad and good.
While the market might be slow for the time coming, it can be good to enter Philippines’ market in an early stage and before competitors.
Domestic eCommerce Operation
Domestic eCommerce operation is the final option where you import your products to The Philippines and sell them on the local platforms. Examples of platforms include Lazada, Shopee, and Zalora.
Keep in mind that Lazada and Shopee accept cross-border sellers in The Philippines but with product restrictions for supplements, food, and beverages. Other Commerce marketplaces grow rapidly and are worth looking at.
Selling domestically offers both disadvantages and benefits. First, you must have a local entity or work with an importer that can manage the distribution locally.
By having a local company, you can lease an office and hire local staff, which is good if you want to be closer to the market.
Yet this comes with costs, responsibilities, and can come across as quite daunting compared to incorporations in Singapore and Hong Kong.
Philippines Market Entry Obstacles
No matter in which country you plan to launch your products, you’ll always come across market entry obstacles and unforeseen pitfalls. Below you can find some common market entry obstacles that can even determine whether a company enters a new market or not.
Import tariffs vary greatly in the Philippines and range from 0% to 65%, depending on your products and the country of manufacturing. For non-agricultural goods, tariffs average at 6.7%.
The value-added tax, on the other hand, is 12%.
There are many setup costs to consider when entering a market. Examples include setup costs for incorporation, deposits for service providers, initial marketing campaigns, imports, and more. We will cover this in greater detail later in this article.
Product Standards & Labeling Requirements
Philippine marking and labeling requirements are managed under the Philippine Consumer Act (Republic Act No. 7394) and the Philippine National Standards (PNS).
Products sold in the country must be labeled with the following information:
- Correct and registered trade name or brand name
- Registered trademark
- Registered business name and address of the manufacturer, importer, or repacker of the consumer product in the Philippines
- General make or active ingredients
- Net quality of contents, in terms of weight
- Country of manufacture, if imported
Keep in mind that this is general information only and other regulations might apply depending on your products. Be sure to confirm with a third-party service provider what your products require.
Example A: Food Packaging
The following information must be placed on the label on pre-packaged food products.
- Product name/name of the food
- Use of brand name and/or trademark
- complete list of ingredients
- Net contents and drained weight
- name and address of manufacturer, repacker, packer, importer, trader, and distributor
- Lot identification
- Storage condition
- Expiry or expiration date/use-by date/consume-before date (recommended last consumption date)
- Food allergen information
- Nutrition facts/nutrition information/nutritive value
The requirements derived from the DOH in Administrative Order No. 30-2014 (“Revised Rules and Regulations Governing the Labeling of Pre-packaged Food Products Further Amending Certain Provisions of Administrative Order No. 88-B s. 1984”) (“Food Labeling Rules”).
Example B: Safety Marks
Philippines has two marks that are worth mentioning in this article:
- The Philippine Standard (PS) Quality and/or Safety Mark
- Import Commodity Clearance (ICC)
The marks are used for consumer guide and assurance, meaning that products are certified and conform to the relevant Philippine National Standards (PNS).
Products covered by the BPS Mandatory Product Certification Schemes must have the PS mark or ICC sticker before being sold in the Philippines.
Market Entry Research
Before you enter a new market, you have to do sufficient market entry research. Below you can find the main items to check prior to an online market entry.
Before you choose a marketplace, you must understand what sales channels they accept and what criteria they have.
For instance, do the websites accept cross-border sellers or only domestic sellers? Do they offer suitable payment methods that allow you and your users to manage transactions swiftly?
You should also confirm the logistics capabilities of the marketplaces. While some platforms encourage sellers to use in-house logistics services, other marketplaces provide little support and direct sellers to third parties.
Lazada is the biggest eCommerce marketplace in Southeast Asia and allows cross-border sellers to reach customers in six countries at once.
Started in 2012 and owned by Alibaba Group, Lazada has much financial backing and the muscles needed to develop state-of-the-art solutions.
Lazada typically has the widest product assortments and offers many swift payment solutions through its partners, World First and Payoneer.
Buyers have many payment options and can use cash-on-delivery (COD), which is highly used in developing markets.
If you sell cross-border on Lazada, you will stock the products in their fulfillment center in Hong Kong. The service is called Fulfillment-By-Lazada (FBL) and is similar to that of FBA that Amazon uses.
Deliveries, on the other hand, are managed through Lazada Global Shipping (LGS), making the whole shipping process easy and affordable. Not to forget, the return process is also developed and customers can drop products at certain stations.
Shopee is the second-biggest eCommerce marketplace in Southeast Asia and partly owned by one of the biggest rivals to Alibaba Group, Tencent Holdings. Shopee is available in many Asian countries and regions, including:
- Singapore (Shopee.sg)
- Malaysia (Shopee.com.my)
- Thailand (Shopee.co.th)
- Vietnam (Shopee.vn)
- Indonesia (Shopee.co.id)
- Philippines (Shopee.ph)
- Taiwan (Shopee.tw)
- Korea (shopee.kr)
Many shoppers like Shopee due to its shipping services that are sometimes free, depending on the products. Lazada and Shopee will most likely be your two first options when selling in Southeast Asia.
Setup costs can be burdensome for companies that don’t have the financial capabilities of big companies.
Having said that, starting selling in Southeast Asia is significantly cheaper compared to China where you need a budget in the tens of thousands of US dollars, at a minimum.
The setup costs will also differ depending on your sales channel and option for market entry. Selling cross-border might require less time and money as you won’t have to incorporate in the country, for instance.
Competitor Cost Analysis Research
You should set aside sufficient time in analyzing the market and the products available beforehand. It’s easy to make basic pricing analyses by checking listed products on websites such as Lazada and Shopee, for example.
You can also do more in-depth pricing analysis with the help of third parties, including offline.
Shipping & Logistics
The sales channels used will also determine your logistics options and shipping costs. Cross-border sellers typically store the products in fulfillment hubs like Hong Kong, where the products are sent from into the Philippines.
If you plan to sell domestically and import the products, it’s recommended to use local fulfillment services providers in the Philippines to reduce shipping lead times and costs. This will make the returns process easier as well.
If you plan to sell domestically, you first have to import the products. This requires that you open your own local entity or work with a distributor or importer that can import the products on your behalf.
Exporters often prefer to incorporate to keep control of the sales process, at least after some time and particularly if they have issues with importers.
Incorporating in the Philippines is comparatively easy. Below you can find the general requirements and documents needed to set up your company.
- 2-15 directors or incorporators (majority must reside in the Philippines)
- Minimum of 4 officeholders
- Foreign Equity > 40.01% : US$200,000 in capital requirements
- Certificate of Registration form SEC
- Barangay Clearance
- Business Permit From the Mayor’s Office
- Proof of Address such as Contract of Lease
- Passport or local IDs