CHIEF EXECUTIVE OFFICERS (CEO) in the Philippines remain confident about business prospects over the next 12 months despite mounting uncertainty from global trade tensions and monetary tightening, regulatory changes at home and the challenge posed by disruption, according to results of a survey conducted by PwC Philippines for the Management Association of the Philippines (MAP) that were released on Monday.
A summary of results, presented to journalists, showed 89% of the survey’s 122 respondents (103 of whom belonged to “traditional” businesses and 19 to start-ups), down from 92% in the comparable 2017 survey, “confident about their revenue growth prospects over the coming 12 months.” The respondents came from infrastructure; business process outsourcing (BPO) and information technology (IT); manufacturing (consumer and industrial products); agriculture, forestry and fisheries; health care, pharmaceuticals and life; as well as retail and wholesale distribution sectors.
PwC conducted the Philippine CEO Survey, titled: “The future of possibilities: Business in the age of disruption,” in July-August in time for the 16th MAP International CEO Conference that will be held today at the Makati Shangri-La hotel.
The survey showed 79% of the respondents “positive that Philippine economic growth will exceed the average ASEAN economic growth for 2018,” for which state economic managers target 7-8% despite a disappointing 6.3% first-half average that compares to the year-ago 6.6%.
Respondents pin their hopes for the economy on a continued boost from domestic consumption (70% of respondents), infrastructure (67%), BPO and other services (54%), remittances (49%), investments (25%) as well as global and social trends (20%).
In order to spur business expansion, 76% of respondents said they will rely on organic growth, 59% on new strategic alliances and partnerships, 45% on cost reduction and a fifth on outsourcing.
Roughly echoing results of the 2017 survey, this year saw 22% of respondents identifying Singapore as the most important country for their companies’ overall growth in the next 23 months, followed by Indonesia (16%) and Vietnam (14%). Other countries considered were China (11%), the United States (11%), Malaysia and Thailand.
Asked if quickening inflation — which marked seven straight months of increase in July at a nine-year-high 5.7% and which both the central bank and a BusinessWorld survey expects to have hovered around 5.9% in August (when data is reported on Wednesday) — had a hand in tempered overall optimism, Mary Jade T. Roxas-Divinagracia, Deals and Corporate Finance managing partner at PwC Philippines, replied in the affirmative, noting that the survey was conducted amid a “peak” in inflation rate.
Prices of widely used goods and services surged by an average of 4.5% in the seven months to July against the central bank’s upgraded 4.9% full-year forecast average and 2-4% target range for 2018.
Ms. Roxas-Divinagracia added the weakening peso, global geopolitical tensions, monetary tightening worldwide and the worsening trade row between the world’s two biggest economies to the litany of risks the country and businesses face. “On the external front, of course, there is also the threat in terms of the normalization of… (monetary policies) of more developed nations — therefore, the fear that there will be an outflow of funds from emerging markets back to the developed countries — and also, of course… more protectionism in US…” she said in a press conference in Makati City on Monday.
To that list, PwC Philippines Chairman and Senior Partner Alexander B. Cabrera added uncertainties due to the country’s ongoing tax policy overhaul and a planned shift to a federal form of government through Charter change — which is feared to result in heightened fiscal risks — that is making investors take a “wait- and-see approach” when it comes to expansion plans.
“Partly, some investors are really being spooked by the uncertainty that is happening… looking at the taxes, the incentives that will be pulled out or that will be substantially reduced… also the uncertainty of whether the Constitution’s amendment will be railroaded,” Mr. Cabrera said in the same briefing, adding that some investors also wonder “whether the rule of law is really possible… in this kind of political environment.”
Business planners also have to contend with increased disruption.
The same survey showed 54% of respondents “recognize that disruptive innovations have significant impact on their businesses and that business models need to be changed to address changing consumer behavior, new kinds of competition and shifting regulations.”
About 94% “believe that disruptive innovations changed their industry over the past 10 years,” while 95% said they “need to work together to introduce new technologies or methodologies to their business.”
The top five drivers of disruption across industries were identified as changes in consumer behavior, new kinds of competition, shifting regulation, new methods of distribution and core technologies of production.
The respondents also identified key disruptive technologies as blockchain, artificial intelligence, Internet of Things, virtual reality, augmented reality, 3D printing, drones, robotics and autonomous vehicles.
“There are aspects in the disruption that are scary for certain industries,” Ms. Roxas-Divinagracia said, while the report itself warned that “[w]ith rapid advances in technology, no industry is immune and businesses will suffer if they do not adapt.”
In order to cope, 68% of respondents said they will change business models in three to five years (of whom 80% said they will change how products and services will be created and delivered, 31% said they will change the target market, 18% said they will shift from product to services, while eight percent said they will change from services to product.)
Roughly 79% said they will form strategic partnerships to harness disruption, 75% said they will invest in new technologies, 31% said they will enter a new region and 28% said they will penetrate a new industry.
Forty-five percent of respondents plan to invest in start-ups, with retail and e-commerce, health care, software as a technology, financial technology and artificial intelligence as top preferred industries.
Asked to identify constraints to themselves being disruptors, 51% of respondents cited financial resources, 44% cited regulatory factors, 43% cited lack of talent, 37% cited existing organizational structure and 32% cited inadequate technology. — Janina C. Lim