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What should an expat know about starting a business in the Philippines?
monkeybeef
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What should an expat know about starting a business in the Philippines?
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As an expat who’s lived in the Philippines for 5+ years my honest answer would be in most cases it’s not worth the hassle. At first it seems an attractive prospect – the start up costs are a fraction of what they would be in a Western country. However, almost every foreigner I have known who has invested in a small to medium sized venture has lost money. There are many drawbacks to starting a business here: Corruption, bribery and extortion are fairly commonplace.The market is saturated with most small to medium sized enterprises – the ‘usual’ ideas – internet cafes, sari sari stores, food carts, restaurants, franchised businesses, KTV Bars, bakeries, spas – too much competition, too many people doing them, margins are too small. Most will turn into a bottomless pit ready to swallow your cash.Red tape and bureaucracy can make it complicated and time consuming get started. Once you’re up and running there are quite high rates of business tax.Some businesses require a Filipino partner, in some cases a majority partner. (although there are ways around this)Some businesses like bars or money lending can be dangerous and normally involve corruption or dealing with unsavory people.You have to be prepared to be on the ground – businesses like piggeries for example or others you might leave to other people to run – forget it. As a foreigner your already at a disadvantage and your liable to be scammed and short changed.If you’ve lived here for a while and know the ropes then its not impossible. Some here in Cebu run tourism related businesses (e.g. scuba diving) with varying degrees of success. There is demand for things like BPO Call Centers and foreign job recruitment – although you would need to have knowledge of those sectors and know the legal requirements. If you have the money you might consider investing in property or condos to rent. This is probably your safest bet – although you still need to be careful. A foreigner I know and his Filipina wife have spent P250,000+ just on lawyer’s fees dealing with a crooked seller who falsified land title and deeds on a house they thought they had bought.
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It’s possible. It all comes down to how bad you want it. How much do you love living in the Philippines and being a part of their culture and people? A business does more than earn money. It integrates an expat into a foreign country. Gives them a way to create their own life in a place which on the surface looks very difficult indeed for them to succeed. I see a lot of people say “You shouldn’t start sari-sari stores, internet cafes, spas, etc.” I say yes maybe you should. That’s where you start. In time these businesses are generally designed to fail. These are the types of businesses that are the cheapest to start. They enable an entrepreneur to learn how to fail at business. Failing is meant to toughen up an entrepreneur for their next venture and weed out the weak minded folk. I started 2 internet cafes when I got serious about living in the Philippines. One was a commercial space located a 2 hour drive from our place. The other was just a room in our rental house partitioned off. Ironically despite the commercial space having 12 units and the house having 6 units – ultimately the house was a little profitable and the commercial space was the loser. It was too far to justify the travel expenses even though we hired local attendants. We had not researched who provides internet before we signed a commercial lease. Oops. Almost lost everything before we started but we did get PLDT to run a new line to our place. It was terrible service and we couldn’t really complain about it. What did I learn? A hell of a lot actually. I learned how to install Ubuntu operating systems, how to swap out computer motherboard, HD, Memory, etc. How to network the computers. I learned how I could ship goods cheaply from Detroit, MI to Cagayan de Oro. I learned how much of a disparity there is in purchasing power between your average Filipino and average American. http://forexcargo.us (PS. Thank you Jopet you’ve been a lifesaver thru the years.) Fortunately we just eeked by until the commercial lease expired and then since the computers were high end for the Philippines at that time we were able to find other buyers for the units and we actually recouped most of our equipment investment. In the following year we took a little more refined approach to business. We aimed to sell local filipino goods (anything from Moro swords to Belo soap) on Ebay (USA market) and keep our overhead expenses minimal. Our first month we sold $1000 worth of inventory and we were stoked. Then came the financial crisis of 2007–2008 and sales just disappeared overnight. Failure number 2. In 2008 when I was in the U.S.A. I had worked many part time jobs. One turned into a full time endeavor which included inspecting foreclosed real estate properties as a real estate assistant. Since they knew I was good with computers they also gave me the task of completing the online reports and I really mastered this job in full. This was one of the only busy jobs during the recession and I was loaded with work. I often worked up to 12–16 hour days alone on my computer 6–7 days a week. In this time my wife and her brother started helping me with work overflow. Maybe within a year or less 75% of my bosses vendor accounts were closed down overnight as they were only supposed to have a single account. I was devastated but I knew I was too close to let this determine my fate. I searched for another Broker in Florida looking for inspection work to be done. Easy enough at this time – I found one. My ultimate task was to talk him into outsourcing not just the inspections but also the reports. He was already outsourcing to Pakistan so I had agreed to match the lower rates. I knew it would be insanely difficult – but it would buy us TIME to diversify. And that is that. I landed one big time client and he was 100% of the business. I started to grow my team and we worked ferociously to make that client successful. But we must not stop there because I know I’m going to fail without diversification. In business nothing lasts forever. Today we have nearly 40 full time staff and considering how fast we started we’re on a trajectory to nowhere fast. But it’s bought us TIME (10 years) to improve our technologies, build our capital and have a little fun in the process. Our company is still like family and I’m hesitant to give that up just for the sake of “business growth”. Business is not a sprint – it’s a marathon.