• Wed. Oct 5th, 2022

Fil-Ams urged to inject capital into PH franchise industry –

ByStephanie M. Akbar

Jun 22, 2022
Photo by Mari Gimenez on Unsplash

LOS ANGELES—Boosted by optimism of higher economic growth this year, the Philippine government is encouraging Filipino Americans to invest more in the country’s franchise industry.

At a recent hybrid franchising seminar hosted by the Philippine Consulate General in Los Angeles and the Philippine Franchise Association (PFA), Consul General Edgar B. Badajos said this first in a series of seminars is aimed at make all business savvy”.

Organized through in-person and virtual participation via Zoom, the seminar brought together members of various U.S.-based FilAm business groups, such as the Coalition of Filipino American Chamber of Commerce (COFACC), the Chamber of Commerce Filipino American from Jacksonville and some Fil- Am business leaders.

Badajos is particularly pushing for this type of business because he believes it is the safest form of investment for Fil-Am investors, who normally have plenty of capital money but don’t have no time to personally manage a business.

“To me, franchising simply means that you can grow your business by letting others do the work for you. There is no risk of losing your own money or going bankrupt,” the Consul General said.

According to Badajos, there are many positive developments in the Philippines that would definitely boost the franchising industry.

Besides bright economic prospects, Badajos is optimistic that the business climate in the Philippines will be more favorable with the start of the new administration of President Ferdinand Marcos Jr.

The government official also noted that incumbent President Rodrigo Duterte has already implemented a number of legislative and administrative reforms that would boost investor confidence in the Philippines.

“We now also have one of the lowest personal and corporate income taxes in the world, thanks to tax reform laws enacted by the Philippine Congress and signed by President Duterte in 2021,” Badajos said.

Early last year, Duterte signed the Corporate Recovery and Tax Incentive Bill (CREATE) or Republic Act No. 11534 which lowered corporate income tax. (CIT) at 25% against 30% for large companies; and 20 percent for small businesses from 25 percent. This previous corporate tax rate was the highest in Asia, making the Philippines less attractive to potential investors.

The Tax Reform for Acceleration and Inclusion Act (TRAIN Act) or RA 10963, on the other hand, reduces personal income tax. Individual taxpayers whose taxable income does not exceed 250,000 pesos per year are exempt from income tax. The exemption for minimum wage earners is maintained. Tax rates for individual taxpayers still follow the progressive tax system with a maximum rate of 35% and minimum rates of 20% (tax years 2018 to 2022) and 15% (from 2023).

Badajos also cited another important measure adopted by the Duterte administration, Executive Order 169 which aims to strengthen the franchise sector and protect investors in micro, small and medium enterprises (MSMEs).

“There are many opportunists and swindlers who take advantage of small entrepreneurs by prescribing minimum terms for franchise contracts. This EO puts in place measures to ensure a transparent and business-friendly environment as well as fair and equitable business processes,” he said.

Under the EO, the Department of Trade and Industry (DTI) is responsible for creating an MSME Franchise Agreement Registry, which will only accept agreements that incorporate specified minimum terms. Franchisors who are part of registered franchise associations must register their standard franchise agreement with the DTI and agree that all future agreements will incorporate the specified terms and conditions.

The EO indicates that those who are not part of these associations must register all agreements with MSME franchisees within 30 days of their execution. These franchisors are also encouraged to join registered associations.

With the implementation of all these legislative measures, Badajos said the outlook for the national franchise sector will remain bright.

“Given the great potential for growth in the franchise industry in the Philippines and the complementary legislation I mentioned earlier, I hope you have already been convinced to consider investing, at least in a franchise in the Philippines. By doing so, you will not only contribute to the economic recovery of our country in the post-pandemic era, but you will also provide employment opportunities for more Filipinos in their country,” the consul told participants. at the seminar.

The latest macroeconomic forecasts show that the country’s gross domestic product (GDP) is expected to increase by 6.7% this year, compared to 5.6% in 2021 and -9.6% in 2020. GDP is the sum of goods and services produced by a country’s economy over a given period. of time.

Based on the ASEAN 6 Economic Update Report, in the first quarter of 2022 alone, the Philippine economy grew by 8.3%, the highest in Asia, compared to Indonesia (5%), Malaysia (5%), Singapore (3.5%) and Vietnam. (5.03 percent).

Net foreign direct investment (FDI) is expected to recover to $8.8 billion in 2022 from $10.52 billion in 2021 and a significant improvement from $6.5 billion in 2020. Net inflow foreign direct investment is defined as the total value of foreign direct investment made by foreign entities, including non-resident investors.

The country’s gross international reserves, meanwhile, are expected to fall from $108.89 billion in 2021 to $110.1 billion in 2020 to $117 billion this year. reserve position at the International Monetary Fund.

OFW remittances, the main driver of economic growth in the Philippines, are expected to increase by 4% to $36 billion, from $34 billion and $29 billion in 2021 and 2020, respectively.

The seminar’s guest speaker, Dr. Bing Sibal-Limjoco, Vice President of the PFA and Honorary President of the Philippine Chamber of Commerce and Industry (PCCI), meanwhile noted the growing contribution of the the franchise to the country’s GDP.

In his presentation, he showed that the franchise industry contributes about 7.8% to the GDP. Specifically, these contributions are in the food sector, 80% or 538 billion pesos ($10.8 billion); and the retail and service sector, 10% or 67 billion pula ($1.34 billion).

Limjoco said there are around 200,000 franchise outlets in the Philippines, creating two million direct and indirect jobs and providing high backward linkages to the labor-intensive agricultural sector.

She also said the Philippines has been recognized as a franchise hub in Asia “because a lot of the brands we have have to really make sure the franchisee will make money and customers will come back.”

The PFA official noted that the franchise industry has remained resilient and even exploded during the COVID-19 pandemic.

“It should also be noted that many companies have decided to go into franchising to survive the COVID-19 crisis. This is how the franchise industry is adapting to COVID-19, they have gone digital through e-commerce sites; cashless transactions and online buying and selling communities. They have become hyperlocal by opening outlets/offering delivery services in residential communities, food trucks/mobile outlets and community retailers Mister Donuts and Tokyo Tokyo have been the main adaptors of this strategy. They have been doing intensified delivery through drive-thru and pickup programs,” she said.

During the seminar, COFACC President Gerry Palon suggested collaboration with PFA for a possible connection of their systems to effectively address certain logistical concerns, including information dissemination and data availability. COFACC is an umbrella organization of 22 partner chamber organizations in the United States

“We can help the PFA connect their portal to all of our platforms. This can facilitate the systematic publication of vital information such as accredited branch data, a short summary sheet, contact details of franchisors, franchise fees, among others,” said Palon.

Limjoco hailed the COFACC initiative saying that being well informed about the ins and outs of franchising business will effectively protect potential investors from scams. Among the signs of fraud, she said, are: if they are promised with statements of profitability that are too good to be true; use of pressure tactics when selling their franchises, absence of a list of franchisees and points of sale and vague company profile and list of managers.

“This sharing of data will allow investors to know if they are doing business with credible franchisors. We want to avoid these fraudulent activities because it will destroy the franchising industry,” she said.

She also invited Fil-Am investors to attend the upcoming Franchise Asia Philippines Conference (virtually) from September 20-22, 2022 and Franchise Asia Philippines Expo (face-to-face) from October 14-16, 2022.

Badajos, meanwhile, said the Philippine consulate will likely hold more franchising-related seminars in the coming months to address any concerns from potential FilAm investors.

In addition, Limjoco also highlighted in its presentation some potential franchise ventures for FilAms such as: Potato Corner, World’s Best Flavored Fries (Capital P300,000-P600,000; space requirement 4 sqm and above); The generic pharmacy (P700,000 to P900,000; space required 15-30 m²); and Reyes Haircutters, Ang Salon ng Bayan (P800.00 to P3.5 million).

Other potential franchise opportunities are: Bang Bang Bangus (Capital P450.00 to P550,000 (Franchise Fee P200,000, Space required: 6-12 sqm), first big flavored boneless crispy bangus; Farron Cafe, quality coffee and affordable for students and young professionals (Capital: P499,000 to P879,000; space requirement 4-10m²) Farron Fix special promotional package (P119,000; 3m²); and Famous Belgian Waffle, the most famous in the country (Capital: P550,000-P730,000; space required 3-8 m²).

Limjoco said interested Fil-Am investors may have the option of bringing these franchise businesses here to the United States or investing/buying a franchise in the Philippines. not

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