Innovate to compete against foreign firms, MSMEs urged

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LIBERALIZING RETAIL INDUSTRY

Following the announcement of the government to further liberalize the retail industry in the Philippines, a retail sector leader in Cebu urged local micro, small, and medium enterprises (MSMEs) to step up their game should more foreign players enter the market.

While Philippine Retailers Association (PRA) Cebu president Robert Go recognized the negative impact liberalizing the retail industry will have on small homegrown players, he said they can have a fighting chance if they innovate.

“What the MSMEs can do is to innovate and avail of technologies they can afford, although there are limits to what can be done. More than 10 percent or maybe more of homegrown companies will be able to do it,” Go said in a text message to Cebu Daily News.

Steps to take

Among the steps local players can take are investing in customer service training and business intelligence programs to better know their customers’ needs and wants, IT programs to assist in their operations as well as coming up with better products and competitive pricing.

Go said the PRA has been conducting trainings and seminars to brace for even more competition.

Lower paid-up capital

Last week, it was announced that government wanted to lower the current minimum paid-up capital for the retail industry for foreign investors from the current $2.5 million threshold to $200,000 in a bid to make local companies more competitive internationally.

The European Chamber of Commerce of the Philippines (ECCP) earlier said this plan is a “step in the right direction,” although it would have been ideal to allow foreign firms to enter the retail market here without any minimum threshold in paid-up capital.

Proposal bucked

However, other interest groups such as the PRA and the Philippine Chamber of Commerce and Industry (PCCI) bucked the proposal, saying it will hurt MSMEs due to the entry of undue competition.

Go said 99 percent of retailers are MSMEs, with many of them in Cebu closing shop due to the entry into major malls of big international fashion brands such as Forever 21, H&M, Uniqlo and Zara.

“PRA has lost some of its members due to competition. These global companies have a competitive advantage which locals do not have,” he said.

The local PRA official said that in other developing countries, they nurture local firms first before opening up the economy to foreign investors.

With this plan, Go said they are bound to lose more members in their organization.

Go added that this plan also goes against the government’s MSME mentoring and Go Negosyo programs through the Department of Trade and Industry (DTI).

The business leader added that employment will also drop since the retail sector employs 25 percent of the total Philippine workforce as well as contributing a substantial part in the country’s gross national product, having the biggest share in the services sector.

MSMEs alone comprise 33 percent of the total retail sector which will potentially be largely affected should the government push through with its plan.

“Even big retailers are having difficulties dealing with competition. We have seen that even in developed countries, local retailers close shops because of the entry of foreign players,” said Go.

PCCI stand

In a recent Inquirer report, PCCI president Augusto Barcelon was quoted as saying that the $2.5 million threshold was already considered low for retail markets in Europe and the United States.

Further reducing that to an entry point “so low” would invite companies that would just want to “try” investing in the Philippines since they would have “nothing to lose,” he added.

Top PCCI officials believe that the country is better off sticking with the status quo.

End to protectionism

ECCP president Guenter Taus, meanwhile, said it was about time to put an end to the “protectionism” that favors local MSMEs at the expense of having better competition, and thus better goods and services for Filipino consumers.

Socioeconomic Planning Secretary Ernesto Pernia announced last Oct. 2 that the 11th foreign investment negative list (FINL) would include the reduction in minimum paid-up capital for the retail industry.

The biennial list, which outlines the industries where foreign companies have limited participation, is expected to receive President Rodrigo Duterte’s approval before the end of the year.

The Retail Trade Liberalization Act of 2000 reserves the minimum paid-up capital below $2.5 million exclusively to Filipino businesses, a form of protection that provides a space for MSMEs to grow in. Foreign players, on the other hand, are allowed to enter once their minimum paid-up capital exceeds that threshold.