Having Starbucks does not make the Philippines a Foreign Investments Darling

Posted by BongV on Dec 8, 2014 in Economy | 0 comments

A common mistake of those who aver that there are no FDI restrictions in the Philippines is the presence of foreign sounding franchises like Starbucks.

What these people fail to differentiate is the corporation who pays for the license to use the franchise brand (franchisee) – and the foreign firm which grants the license (franchisor).

Under the Philippine set up – the franchisee will still be Filipino majority owned entity – that pays the franchise fees to the foreign firm which owns the brand.

So, no Virginia – the presence of Starbucks in the Philippines is not proof of unrestricted FDI in the Philippines. That’s such a half-assed statement to make.

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There was an assertion that Indonesian tycoon Salim had run around the restrictions.

I recall a series of graphs in a new daily showing how Metro Pacific controlled PLDT. As far as am concerned – that Salim was able to run around the restrictions is a GOOD THING!

However, how many investors have the same size and savvy as Salim?

For instance, do you expect a retired foreign employee, who is willing to use their retirement funds to open a small restaurant, retail shop, or a small manufacturing concern, or a trading firm to set up three holding firms so they can run around the restrictions?

Can you imagine how much you will have to pay corporate lawyers and how long it would take to incorporate three holding firms – and one flagship corporation just so you can open a sari sari store or an Internet cafe?

Thus, I argued the issue is not whether the restrictions can be run around or not – the issue is that there are restrictions in the first place.

Now, the push back against Salim has been that it has captured a lot of the Philippines industries. That my friends is what you call regulatory capture. It is the smoking gun of the uselessness of regulations because in the end the regulations will be used to keep competition out.

The only way to ensure that Filipino consumers get the best value for their money is not to kick Salim out and replace him with Ayala.

The best way is to deregulate and liberalize the industries captured by Salim and the oligarchs and have a laissez-faire economy, allow all competitors to take a shot at serving Filipino consumers so that only those who provide superior value to consumers will gain market dominance.

For short, market leadership should be an outcome of superior value and service to consumers- not protectionist legislation.

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I don’t think any of those “public gems” like PLDT, PAL, Globe, are gems. They are lousy firms that should not have been protected at the expense of Filipino consumers. PAL, PLDT, Globe, ABS0-CBN et al should not be protected at all.

We don’t need restrictions on the right of consumers to choose the firms they would like to do business with.

Choosing between one lousy pinoy firm versus another lousy pinoy firm is a false dilemma which can be eliminated by allowing foreign firms who can do the job for the Filipino consumers

The bottom line is this – Filipino firms that don’t provide a service to Filipino consumers should be allowed to die a hard death.