Reporting from: Manila, Philippines
The Philippines has been experiencing solid 6% growth as it develops along with much of Southeast Asia. As such, the Philippines offers unique opportunities for expat entrepreneurs who want to start an offshore business.
As I wrote about yesterday, there are a few westernized parts of the country that make it a reasonable choice for expats, retirees, and entrepreneurs. Owing to its history, the rest of the country feels as much like parts of Latin America as it does Asia.
Many expat entrepreneurs who want to live here also want to know exactly how to start a business in the Philippines.
Nouriel Roubini recently came to Manila and called the Philippines “an economic success.” The country now has an investment grade rating and others are expected to come shortly. While the country isn’t at the level of say, Malaysia, things are looking up.
Economic liberalization is coming, and while there is a lot of work to do, the political winds are blowing in the right direction.
The good news is that starting a business here can be relatively easy if you understand how the government works. You don’t need the $75,000 for an investment visa — far from it. In fact, you can start a business in the Philippines for as little as $125.
How to avoid foreign ownership restrictions in the Philippines
The government here has imposed restrictions on foreign-owned businesses. Just like restrictions that prohibit foreigners from owning real estate other than condos, these restrictions are a form of internal protectionism that aim to keep foreigners working with their own.
To start a retail business, for instance, you need paid up capital of US$2.5 million. For that price, you could set up shop in any number of places, including some of the world’s wealthiest countries. While the country goes ga-ga for American brands (you can find even small American chains here) I would advise you, as a small business owner, to go a different route.
Your entrance pass into the country is perhaps the first thing Westerners think of when they think of the Philippines — outsourcing.
Specifically, business process outsourcing, or BPO. It’s a booming business expected to double in the near future. One contact of mine says he sees a bubble there, but he also says the industry keeps finding new ways to innovate and expand. That’s why, for a mere US$125 in paid-up capital, you can be off and running as an employee of your own Filipino company.
Foreign ownership restrictions don’t exist on these types of companies, which is important since anti-dummy laws are intense — no matter who you talk to who claims you can pay some guy on a jeepney $500 and call him the “owner” of your company.
I think BPO will continue to be one of the global trends in coming years. But the trend will continue to innovate. One possibility is the expansion of outsourcing to non-English speaking developed markets. Countries like Japan and Korea don’t rely on call center outsourcing to the same degree as the Americas.
Filipinos are known for being adaptable to a large number of people and situations.
After all, that’s part of why it’s the world’s outsourcing capital (have you ever had a Filipino operator shout back at you?). As such, you’ll see more Filipinos learning languages like Japanese in order to take jobs that will be created to serve those markets. There’s already a decent premium for those who can work with non-English speakers.
An ideal place to start an offshore business
The Philippines prefers foreigners to start businesses dealing with their own kind, or at least people outside of the country. If you run an internet business, I believe you may have some latitude to incorporate here, get residence in the country, and run your business as you see fit.
Unlike programs such as Singapore’s Entrepass, which place mandates on business spending and staff count, the Filipino program has no employment requirements and no minimum spending. That’s a huge plus for one-person and small businesses who can’t meet such requirements out of the gate.
As I’ve mentioned earlier, the Philippines has a very familiar feel to it for Westerners. If concern over culture shock is holding you back from starting or moving your business offshore, you’ll have few issues here. Manila’s central business district in Makati City feels like Los Angeles, with luxury shopping and countless Western-style restaurants. You’ll fit right in. And, if you choose, you can buy a condo in the prime Makati district for as little as $60,000.
For that reason, and for the bare bones requirements to get a visa to run your company, the Philippines is a jurisdiction worth considering if you want to work internationally. If you want to open a retail store or restaurant, you’ll need to find a legitimate Filipino partner to own 60%.
Forming the corporation takes about a month, and getting your visa another few months. The good news is that the government takes actual think tank reports and studies various processes — such as incorporating — and how they can simplify things.
While corruption here has been hard to root out at the lower levels, Americans are well-known for bypassing that part of the culture. Government seems reasonably flexible and understands where it’s bread is buttered.
And Filipinos are some of the most can-do and pleasant people to employ — for wages in the $400-a-month ballpark, 80% are reportedly happy with their lives and a spirit of helpfulness is apparent everywhere you go. The learning curve is certainly shorter here.
For more information on the Philippines, read my reports about Philippines second residence and Philippines real estate.