U.S. Companies Find Cheap Labor -- and Growing Consumer Market -- in Philippines

MANILA (TheStreet) - The fast-growing Philippines is becoming a magnet for U.S. companies, both as source of cheap labor and a thriving consumer market.

Economic growth reached 6.2% last year and the Asian Development Bank forecasts 6.4% this year, making it one of the strongest economies in Asia behind China and India. The country's nagging unemployment rate has also fallen below 7%, thanks in part to the expansion of back-office operations by foreign firms that has created about half a million jobs.

The move by multinationals to rely on the Philippines as a source of inexpensive labor is helping to provide that country's residents with greater wealth. And, in turn, fueling the economic growth in the region.

U.S. companies playing a role in helping to drive this growth include technology consulting firm Accenture (ACN) , which employs Filipinos as back-office workers and also in call centers. Intel (INTC) also relies on residents in the region to staff its 18-year-old Manila sales and marketing office, which the chip giant states on its website is answering a "growing demand for PC technology."

Foreign companies, however, sometimes need more than inexpensive labor to entice them to the Philippines. The country's government is taking other action to make the region more appealing.

The government plans to spend $25.2 million in the coming years to train its residents in such professional occupations as accountants and medical transcribers, in an effort to give multinationals another reason to operate in the country beyond offering inexpensive labor costs and cheap land, says Benedict Uy, a Philippine government trade officer based in Taipei.

Philippine officials are planning to raise the country's infrastructure budget to 5% of GDP next year from 1.8%, in a move to improve its airports, roads, water supply and transportation, according to a report in the Wall Street Journal.

These moves by the government will inspire others to follow Accenture in setting up shop in the Philippines, an Accenture representative said in a statement to TheStreet.

Additionally, the number of Filipinos willing to work nights to provide multinationals with the around-the-clock coverage that these organizations seek is another aspect that drives them to use the country's workforce. As a result, Manila is buzzing at night. This explains how Starbucks (SBUX) has grown to 207 stores in the capital from one after its 1997 launch in the region. 

With improving employment in the country and a stronger economy, Filipinos are making use of their growing incomes. And they are willing to buy products not produced in their native land.

Historically, this nation of 99 million people has produced products for internal consumption and its consumers were used to a range of Philippine brands on their stores, rather than foreign ones, which locals often considered too pricey. But habits are changing

"You'll see the mall scene is not just limited to Philippine brands," Uy says. "Some of those companies are franchises of foreign food chains, fashion brands such as H&M, The Gap  (GPS) and Hermes, electronics such as Apple  (AAPL) and Nokia (NOK) ."

Filipino workers with more money are also eyeing multinational financial services. Banking is limited to a handful of permitted foreign financial institutions, but insurance has a chance to expand. Toronto-listed insurance giant Manulife  (MFC) , for example, brought in record insurance sales of more than $35 million in 2012, the company said.

That record was set "on the back of improving economic conditions in the country," the company said on its website.

 

This article is commentary by an independent contributor. At the time of publication, the author held no position in the stocks mentioned.

More from Emerging Markets

Economist Perspective: Brexit Endgame in Sight?

Economist Perspective: Brexit Endgame in Sight?

China's Weak Data Could Not Come at a Worse Time

China's Weak Data Could Not Come at a Worse Time

China's Gear Shift on Auto Tariffs Moves Industry in an Unusual Direction

China's Gear Shift on Auto Tariffs Moves Industry in an Unusual Direction

Closed-End Funds Stage Modest Comeback

Closed-End Funds Stage Modest Comeback

Studying Up on Arco Platform for a Potential Trade

Studying Up on Arco Platform for a Potential Trade