Reasons To Enter Into Philippines

Published Date: 02 Nov 2017

The first reason to enter Philippines is because their strategic location which is situated in the heart of Southeast Asia between East and West. It is also the top choice for Samsung Company to doing business since it provides an important access point to over 500 million of people in the ASEAN market (ALBA ROMEO & CO., 2012).

Besides that, Philippines is a growing market for smartphone in Southeast Asia (Rao, 2012). Bases on Singapore-based research firm GFK, Philippines is noted as the fastest-growing markets with the smartphone sold increase by 402 percent in the first quarter of year 2012 over the same period in the last 12 months (Montecillo, 2012). In addition, it is also the country with highest jump in smart phone market share within a year from 9 to 24 percent. The sales growth was significantly higher than 78 percent growth recorded in Southeast Asia’s among neighbouring countries in the region, include Singapore, Malaysia, Thailand, Indonesia, Vietnam and Cambodia in year 2012 (RAPPLER.COM, 2012). Therefore, it is the time for Samsung to enter the Philippines market since their smart phones adoption is escalating at a rapid pace.

Moreover, Philippines is growing with people of middle-class and young that present the opportunity for growth in mobile. It is the driven opportunity of Samsung Company since the product offering is mostly targeted at those young and tech-savvy people. According to another research, discovered that one out of four Filipinos own a smartphone and it is driven by the increasing affordability of smartphone across the country (RAPPLER.COM, 2012) The Filipinos customer’s purchasing power is rising that can lead to high profitability of Samsung Company and thus increase in sales and profit. That is also another reason to enter a foreign market, company can gain the opportunity of growth in terms of revenue, sale and customer base.

Furthermore, Samsung enter the Philippines country because of the competitive equity. It is very simple that Samsung enter a new country just want to compete with their competitor. If Samsung failure to do so will "surrender" the territory to the competitor as well as enable them to strengthen their position in smartphone industry. In construct, if Samsung enter and perhaps able to doing efficiently as well as adapt to the ever-changing business environment that can definitely help them to strengthen their position in smart phone industry.

2.0 Analysis

2.1 Pros that Samsung Gain While Entering Philippines Market

Government Support

The Philippines Government has many initiatives for promoting investment in the country. With the passing of the Foreign Investment Act and such agencies as, Board of Investments and Philippines Economic Zone Authority. They are providing valuable government resources at the disposal of foreign investors such as tax benefits and incentives to foreign companies who execute their business with certain government requirements (Find Out Why, 2005). With the tax benefits and incentives offered by Philippine government, Samsung able to reduce their overall production cost as well under the condition of government requirement.

Many Asian economies are beginning to integrate into the ASEAN Free Trade Agreement (AFTA), making the Philippines an excellent strategic location for firms that want access to the large ASEAN market and its trade opportunities. The Philippines has set up certain areas for investment and free trade zones to take advantage of its highly skilled and competitive manufacturing force (Find Out Why, 2005). It could be another new cost saving approaches for Samsung by building the manufactory at the free trade zones and enjoy the advantages such as lowest tax rate or even no tax rate exists depend on the certain importers materials and condition.

Cost Saving

Samsung enjoy with the advantages of low started up cost when opening business in Philippines. At the same time, Samsung could probably fund the extra investment into their Philippines marketing mix plans. Due to the wage rates are typically less than a fifth of that in the United States. Moreover, there are 50% lower cost of local communication, electricity, and housing costs compared to the US rates. Foreign companies that are now outsourcing programming and business processes to the Philippines estimate 30%-40% business cost savings, 15%-30% call center services and application systems, and 35%-50% software development (Find Out Why, 2005). Due to English-speaking would be the main communication language to use in Philippines among employees and employers, the probability of language barrier could be relatively low and it might save-up the organization additional communications variables cost too. At the end, it also could lower down the communication gap of local employees and foreign employees by speaking English.

Workforce

With higher education as a government priority, the literacy rate in the country is over 94% from 10-64 year olds which mean 94% of the populations are educated. Surprisingly, English is taught in all schools, making the Philippines is the third largest English-speaking country in the world. With a large pool of professionals in all skills that is constantly being replenished by over 350,000 annual graduates. The work ethic of Philippines is considered to be one of the best in the region with many companies sighting the extreme loyalty of Philippines' staff (Find Out Why, 2005).

Growth Opportunities

Philippines disposable income per capita is expected to grow at 7.2% p.a. over the next five years, while mobile handset sales such as mobile phone and smart phone are estimated to grow by 8% p.a. to 17 million units in 2016. Due to the high smartphone usage, smartphone sales are expected to grow by about 60% in 2011. Besides that, the growing 3G and mobile broadband influenced the growing demand for high speed Internet access from smartphone users. Thus, Smartphone penetration to grow from 18% and to 50% in the next three years which mean more and more smartphone users in Philippines and there is a demand for Samsung smartphone (Javier & Menezes, 2012).

While the Philippines has already been named as the ‘Texting Capital of the World’, they are now also the "Social Networking Capital of the World". Mobile phone operators continue to handle more than 200 million SMS messages sent daily, however more consumers are shifting from text messaging to messaging through social networking. Philippines mobile phone users included smartphone users are mainly emphasizes on SMS services all the time which mean they prefer adapt messages sending to others parties as communications. Philippines involved 10% of global SMS rate in the nation (Philippine Embassy Webmaster, 2008). Therefore, SMS based services are key to success in Philippines. Samsung could gain benefits through alliances with others telco companies and offering brilliant SMS services and packages as a marketing tools for Samsung smartphone. New customers might probably choose to purchase Samsung smartphone because of the SMS packages that offered by Samsung and telco companies are very attractive while old Samsung customers would become more loyalty of the satisfaction and convenience of SMS packages.

Potential Market

The Philippines' per capita consumer spending is almost double that of India. According to the World Bank, the Philippines' per capita consumer spending is $957, while for India it is $493. The consumer purchasing power of Philippines' is higher than India and it make Philippines as a very attractive market to enter for foreign companies. There is a huge opportunity yet to be tapped in the Southeast Asian region. Philippines is the seventh-most populated nation in Asia, and 12th-most globally (Premji, 2013). Philippines has a large domestic market with 96 million people, it could be a young population whereby under the age of 24. Besides that, Philippines is also a ready pool of talent of which 80% of the population speak English. The country’s low economic base also offers ample opportunities for growth (Javier & Menezes, 2012). The target market of Samsung in Philippines market could be targeted on the age range of 10 years old to 64 years old which is the 94% of population.

According to HSBC’s "The World in 2050" report, the Philippines is expected to leapfrog and become the 16th largest economy by 2050, with an expected average growth rate of 7% p.a. in the next 40 years. In addition, the popularity of social media and multimedia content of Philippines is the eighth largest Facebook user populace in the world, with 27.7 million users as at end 2011 (Javier & Menezes, 2012). Samsung could be gained a lot of benefits through implementing online advertising approaches to reach these potential markets. The Philippines’ mobile market recorded strong growth in the last decade with mobile subscribers increasing from 6 million in 2000 to 92 million in 2011. Growth over the next five years is forecast to moderate at 3.5% p.a. as the market matures (Javier & Menezes, 2012). People are using mobile phone everywhere and every time. Therefore, Philippines market is consider a mature market for mobile industry, Samsung would probably facing lower risks and uncertainty compare with other countries which still in immature market condition. Smartphones would be eliminate mobile phone as soon as possible because of they are more advance in technology and helpful than mobile phone.

Market Share

According to Appendix 1 showed that Samsung has become the world’s leading mobile phone maker. How about in Philippines? Table above showed that Samsung take the lead from Nokia in worldwide mobile devices industry. The same situations happen in Philippines. According to market research group GfK Retail and Technology Philippines, Ltd. (2012), Samsung now has 37.3% of the market share’s volume with a value of 46.6% in Philippines. Further, Domingo (2012), product marketing head for Samsung Philippines’s mobile division mentioned that market share could go up more than 50 percent by the end of year 2012. Samsung has now managed to take the top spot in phone sales from Nokia, previous market leader in Philippines.

2.2 Cons that Samsung Facing While Entering Philippines Market

Terrorism Threat

There is a high threat of terrorism throughout the country ("Overseas Business Risk," 2013). Philippines terrorist groups have the ability to carry out a series of attacks at anytime and anywhere. Further, such attacks could be indiscriminate. Recently, mainland Mindanao and Sulu archipelago have been facing serious terrorist attacks. Besides, foreigners have also been kidnapped for ransom, especially in the South. The risks that Samsung faced increased as well due to the terrorism threat. Samsung have the chances to handle with the unnecessary losses such as manufactory and retail stores been destroyed with no reason and so on. Further, the kidnapped issues also threaten the safety of Samsung foreign workers. As general, they are a lot of foreign workers work as the top management level and white collar level within an oversea organization. The kidnapped issues may imperil their life and choose to quit Samsung or refuse to work in Philippines.

Protective Security Advice

There is a high incidence of violent crime, including gun crime, in the Philippines (Overseas Business Risk, 2013). The gun ownership is extremely widespread in Philippines, legal and illegal. On the other hand, foreign nationals are not permitted to carry firearms. As the result, the safety of foreigners was no under the protective. Philippines are prevalent in street "crime" and robberies, such as bag snatching or pick pocketing. Public transport is also subject to distraction theft and armed robberies from time to time. Foreigners are not normally will be the targets although assumed to be wealthier. Security risks are highly faced by Samsung. The probability for retail stores being robbed is high; not only in retail store but also during the delivery of product to retail store. Samsung logistic transportation also might face the same problems as well.

Intellectual Property

The Philippines is a member of the World Intellectual Property Organization (WIPO) and the World Trade Organization (WTO) and is a party to the Berne Convention, an international agreement governing copyright. Good IPR protection laws exist but concerns remain about the level of consistent, effective and sustained enforcement. Counterfeiting is large-scale and everywhere. In November 2011, the Philippines government plan to strengthen IPR protection and enforcement. Besides that, Philippines have a large informal and underground market. Unfairness competition occurred whereby parallel imports or unauthorized imports of some products encountered by underground exporters. More than 40 percent of the mobile phone units in the local market are estimated to be unauthorized imports. Although government plan to strengthen IPR protection and enforcement, it could probably taking time to process and success rate is a question mark for whole Philippines entrepreneurs included mobile industry such as Samsung, Apple, Nokia and so on. The lacks of protection against Samsung whereby the counterfeit products are exist in the market become a threat and issue to Samsung. This situation would probably caused Samsung losing their sales volume, customers satisfaction dropping due to counterfeit product's quality are extremely low, customer wrong recognizing their product and at the end Samsung brand reputation will also be affected too (Overseas Business Risk, 2013).

3.0 Recommendation

Promotion Strategy- Social Media Strategy

There is a huge number of social media users in Philippines especially Facebook. And, Philippines is the eighth largest Facebook user populace in the world, therefore implementing and enhancing social media strategy is the effective way to well promote the products and image of Samsung , especially its high-end smartphones such as Galaxy Note II & Galaxy S III. Furthermore, there is huge amounts of Filipino don’t know about mobile phone (Javier & Menezes, 2012), therefore Samsung is play an important role in promotion strategy especially social media.

Samsung Mobile India is one of India’s largest mobile phone sellers, and powered by its Galaxy series of smartphones (Rakesh, 2013). Samsung Mobile India implemented the social media strategy successfully, and it’s focused primarily on promoting its high-end smarthphone through the top three social media channels, which are Facebook, Twitter and YouTube (Rakesh, 2013). Therefore, Samsung has high opportunity to get successful on social media strategy in Philippines.

Channel Distribution-Electronic Business Strategy

Selling products through internet is widely used by most of the businesses due to it’s cost saving and reach large target-audience. Internet is widely using by Filipino; therefore Samsung has the opportunity to create electronic commerce strategy (e-business) through internet. It is convenience for consumers to search for the information as well as compare the products information with competitors, and consumers able to making purchase decision through online as well.

Dell is one of the world’s top providers of computer products and service to businesses and consumers through internet (Kenneth & Jason, 2011). Dell’s business has been built on a direct sale and build-to-order strategy for producing and selling PCs (Kenneth & Jason, 2011). Direct sales able to create direct relationship with customer and helps Dell to save-up the total cost of ownership such as inventory cost, expenditures of advertising and promotion and so on, these two are the most benefits that gain by Dell (Kenneth & Jason, 2011). According to successful e-commerce that built by Dell, Samsung has the potential to create both physical business and virtual business successfully.

Talent Management

Due to the higher education standard and large pool of professional in all skills of talents are occurred in Philippines, operate a well talent management is playing a significant role on Samsung. In order to create a high-performing of workforces in Samsung Philippines, Samsung should create highly-skilled internal talent pool for future planning, such as communication skill (Talent Management Strategy to Create a Higher-Performing Workforce, n.d.). Due to Philippines is the third largest English-speaking country in the world and English is the main language of their communication, therefore Finlipino hold a well communication skill. Enhance employee performance with dynamic goal management is another strategic to sustain talent pool (Sean, 2012). When employees understand the goal of organization and individual is linked together, they would feel that their job is important to the organisation's mission, and get regular feedback on their progress; it would enhance the engagement and performance of employee (Sean, 2012).

According to the pass result of Samsung’s talent management, most of the employees or talents are recruited from international (Samsung, n.d.). Therefore, Samsung should continue searching and retaining the talents from Philippines. And, the both concept of talent management strategy are one of the methods for Samsung to get a talent pool successfully in Philippines.

Differentiation Strategy

Samsung stand on top three mobile phone brand celebrated in Philippines and facing high competition within mobile industry. With business expand internationally; it is necessary to better understand consumer behavior and lifestyle across different countries to remain competitive. Differentiation strategy is one of the strategies often encouraged to implement to benefit from less competition and greater revenue for company. Under mobile industry, it seems touch screen devices are started a new trend and this features are adopted by many companies, make mobile products more and more similar. Therefore, it might require Samsung to differentiate itself to reinforce market position.

On other matters, research showed that apart from increase of SMS and internet usages in Philippines market, Filipino enjoy their life in entertain way (Gordon, 2013). Samsung is not just a phone maker like HTC but also contributed themselves in various industries such as mobile phone, PCs, and TVs and media players. There is different target market and every brand faces challenge in capturing new customers and promotes loyalty. While building an image of innovation in design, comfort ability, and stability and low product price, (Gordon, 2013). Samsung should also improve their speed on product improvement and focus on emotional bond with consumers such as giving virtual reality experiences when playing games. With the benefit of being leader TFT-LCD technology, Samsung have the potential to provide 4D even 5D gaming experiences to consumer. In addition, it could provide an exclusive mobile television experience with friends or family, offer them the time of joy.

Emerging countries include Philippines; consumer needs and wants change over time. Thus, it is essential to retain current customers and come out product that suit to individual wants (Gordon, 2013). Nokia, previous leader of mobile phone as an example, they delivered the message of ability in connecting people. Consumer can enjoy the time being together with their family and colleagues. Now, they make improvement in their product and differentiated their cell phone in hardware, software, localized services and applications in a cost efficient manner (O’BRIEN, 2011). Instead of Android and IOS system, Nokia used Window operation system by having partnership with Microsoft (Nokia, 2012).

Another best example is Apple. Apple had built a strong relationship across the world. They set it apart from other competitors by established a reputation as innovation, design, quality and being different. Apple offered unique product features with sleek and simplistic outlook; maintain great functionality to position differently from others market players. Instead of Android and Window operation system, Apple is only one who used IOS operation system in I-Phone, it showed the differentiation with competitors. In line with its price, it communicates the message of quality and luxury which delivered a message of social bonding (Miguel, 2003). Based the evidences of both close competitors, Samsung should create differentiation strategy in order to enjoy extremely benefits.

Advertising Campaign

Develop an advertising campaign able enhance customer brand awareness and brand loyalty, it is one of the method to advertise the brand image of Samsung. Samsung can focus on those customers who prefer a phone with a very innovative, designate, beautifully and colorful. However, counterfeit products are one of the threats of Samsung (Overseas Business Risk, 2013); it would create negative impact to Samsung in term of brand quality, brand image and so on. Therefore, the advertising campaign is not only focus on built customer brand awareness and brand loyalty; it can be an approach to show customers the way to differential the original products and counterfeit products (approval products-AP) through TV commercial, social media, Video and so on, in order to reduce those negative impact of Samsung. (Refer to Appendix 3)

4.0 Conclusion

In conclusion, it is not an easy task to do business in a foreign country. In the business venture, never assume that we know everything about the business in the foreign environment. First of all, we learnt that the Samsung not only need to assess the potential future and size of earning from a business transaction, it is also important to understand the local business environment in Philippines since each country have different standards. The Philippine business environment is highly personalized. Samsung must look into their economic and political conditions and trends such as government, business opportunity, geography, population and so on. By understand the environment; it can give the business a competitive edge to compete more efficiently and effectively.

Apart from that, Samsung must know the related information on common pitfalls and political risks which the company may faced when operating in Philippines. Samsung learnt some tactics to avoid or prevent the crime and security risk as well as protect their intellectual property by through some advertising campaign to increase consumer awareness toward the brand. Furthermore, Samsung is suggested in extending distribution channel through online selling their product. It’s really a potential opportunity for Samsung to reach more target market. Other than that, Samsung also can use social media such as Facebook, Twitter, or Youtube to share their latest information and have a direct communication with Philippines’s target market. In our opinion, these strategies can help Samsung create awareness in new foreign market.

In studies, we learnt how to analysis business environment with indentify pros and cons that Samsung entering in the Philippine’s market. It’s really helpful for us to understand variety kinds of problems would be encountered by Samsung when entering a new foreign market. In short, Samsung can increase their market share and gain profit in Philippines, but the company also need to take higher risk when doing business.