Perception of risk

Michael Alan Hamlin

Posted on March 31, 2011

The Philippines is a less risky destination in the race for foreign direct investment (FDI) compared to its two primary competitors in the view of IT-BPO and shared services investors. China and India are giants not just in terms of their very large populations, but their capacity for attracting foreign investment. China announced recently that it attracted a record—and staggering—$105 billion in FDI last year.

India may have taken in as much as $30 billion in FDI in 2010, down from more than $36 billion the previous year. If India loosens restrictions on foreign investment as economists and investors urge, FDI would likely soar. According to the United Nation’s trade and development agency, China and India will be the No. 1 and 2 recipients of FDI in the world, followed by Brazil, in 2011.

FDI into the Philippines was less than $2 billion last year. Despite the disparity in the capacity of the Philippines to attract FDI compared to its neighbors, a recent survey shows that many investors in the Philippines believe it to be the same or less risky than China or India. The survey was conducted by the Business Processing Association of the Philippines and Outsource2Philippines in February. More than 170 responses were received.

For half of all IT-BPO and shared services executives who responded to the first-quarter survey, the Philippines is “less risky” (37%) or “much less risky” (13%) compared to India when it comes to investing and operating in the Philippines. There’s little reason for complacency, however, since 42% of respondents found the Philippines about the same in terms of risk compared to India.

Perception of risk for the Philippines compared to China showed the Philippines at a significant advantage, with 64% of respondents indicating that the Philippines is “less risky” (40%) or “much less risky” (24%). Twenty-two percent of respondents found the Philippines to be about as risky as China. There is a small caveat. More respondents, 15%, found the Philippines “more risky” (12%) or “much more risky” (3%) than China, compared to just 8% when compared to India.

Despite significantly high levels of negative publicity surrounding the Philippines outside the IT-BPO and shared services industry, the Philippines appears to be well-regarded within the industry itself. Questions to consider are whether the goodwill associated with the Philippines’ IT-BPO and shared services brand can be leveraged to extend perception of its capability to deliver more complex, value-driven services; and, if positive perception can be further leveraged to support investment in other areas, such as tourism.

Despite the generally favourable results of the study in terms of perception of risk in the Philippines for investors, the survey also showed that much work remains to be undertaken to enhance perception of the Philippines as a credible FDI destination at a most basic level.

IT-BPO and shared services executives are very clear about ecosystem and regulatory priorities. Amidst calls for “rationalizing” investment incentives, for example, sustaining investment incentives, getting local government units to respect those benefits, and the possible introduction of sector-specific incentives  is the top 1 priority for 46% of respondents  and top 1, top 2 (14%), or top 3 (16%) for 76% of respondents.

Legal and regulatory reforms were identified as the top 1 (20%) or top 2 (27%) priority for 47% of IT-BPO and shared services executives responding to the survey. To catalyze investment throughout the Philippines, executives feel that sustaining momentum in preparing Next Wave Cities for investment was ranked the third highest priority, with 35% of respondents identifying research and talent development in these emerging centers as a top 1, top 2, or top 3 priority.

To further enhance perception of the Philippines, investors want to see quick returns after years suggesting the Philippines must manage its image better. About half of respondents said a more tactical approach to marketing and branding the Philippines and the IT-BPO and shared services industry to build momentum and secure quick wins is the top 1 priority, and 74% said it is the top 1 (48%) or top 2 (26%) priority.

Respondents are also concerned that efforts to strengthen broad-based efforts to educate both local and external markets be sustained and strengthened, with 70% making these efforts the top 1 (28%) or top 2 (42%) priority. About 60% of respondents said more relevant messaging of the Philippines’ value proposition is required to reflect the industry’s development and the country’s attractiveness to investors.

The survey shows that investors in the Philippines have a high appreciation for the country and its hard-working people. But they also see the blemishes that need to be fixed. There are two parts to this message. First, better communicate the Philippines’ positive attributes. Second, where investment is hindered, it should be facilitated to make it even easier for investors to create jobs.

(Michael Alan Hamlin is the managing director of TeamAsia and a Manila-based author. His latest book is High Visibility: Transforming Your Personal and Professional Brand. Write him at mahamlin@teamasia.com and follow him on TwitterFacebook and LinkedIn.). Copyright © 2011 Michael Alan Hamlin. All Rights Reserved.)

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