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Japanese firms in PHL expect profits to improve this year

Most Japanese companies in the country are hoping to recover from the pandemic this year. — PHILIPPINE STAR/MICHAEL VARCAS

MOST Japanese companies in the Philippines expect the economy to recover from the coronavirus disease 2019 (COVID-19) pandemic this year, with 60% anticipating an improvement in operating profits.

A summary of Japan External Trade Organization (JETRO) in Manila’s annual business survey was released on Tuesday, showing two-thirds of the Japanese respondents expecting the economy to recover this year, while about 15% expect a recovery after 2022.

“As for operating profit in 2020, 43% of respondents expect a ‘surplus,’ while 22% expect ‘even’ and 35% expect a ‘deficit.’ Some 60% of respondents think that their operating profit in 2020 will be worse than 2019, but 2021 will be better than 2020,” JETRO said.

The survey was held in August and September 2020, with 133 respondents across industries.

“Some 80% of respondents think their market size after COVID-19 would be the same or slightly smaller than that before COVID-19,” JETRO said.

Almost half of respondents revised their business strategies amid the pandemic, such as the implementation of work-from-home or telework schemes. Some Japanese manufacturers also diversified their production base in many countries to strengthen their global supply chain.

A third of the companies surveyed said they planned to expand their business in the Philippines this year, including sales expansion and the production of high value-added products, compared with 52% that said the same last year.

Most companies or 57% will keep the status quo, 8% will scale down, and 1% will pull out their operations from the country.

Japanese companies said the Philippines’ advantages as an investment destination include favorable tax incentives and reasonable worker compensation. It cited the Philippines as the most cost-competitive in terms of compensation for engineers in the manufacturing sector.

However, many cited out negative factors such as unstable politics and society, insufficient power and telecommunicationsinfrastructure, traffic congestion, slow telecommunications, concerns about safety and security, natural disasters, and “complicated” permit process and tax practices.

More than half of the Japanese manufacturing companies said  they had difficulties in getting raw materials and parts locally. About 43% said Japan was their major part supplier, while 10% got theirs from the Association of Southeast Asian Nations. Although 30% mostly get their parts locally, only 38% of these suppliers are Filipino. 

“Although Japanese manufacturers are trying to raise local procurement, they still need to import many parts and raw materials from abroad. Accumulation level of suppliers in the Philippines is much lower than that in neighboring countries,” JETRO said.

In terms of employment, more than 70% of firms retained their Japanese employee headcount last year, and more than half retained their Filipino staff count. In contrast, 17% cut Japanese staff and 23% decreased local staff.

“The ratio of respondents that consider decreasing their employee doubled in 2020, but majority chose ‘the status quo,’” the report said.

In the following years, 32% of respondents said that they will increase the Filipino staff count. — J.P.Ibañez

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