Philippine Franchise Association Chairperson Sherill R. Quintana and President Chris Lim, franchisees and franchisers, ladies and gentlemen—a pleasant morning to you all!
Thank you for inviting me to this year’s Franchise Asia Philippines Virtual Conference.
Your conference theme “Live. Love. Franchise” is more than apt. As we build back better from the pandemic, we are guided by essential activities of living and by the products and services we love. That is, food, beverages, and wellness, as we diversify how we access them through delivery, take-out, curbside pick-up, drive-thru services, al-fresco dining, cloud or dark kitchen, and healthy food options.
Aspiring entrepreneurs are going the franchise route because establishing a business through franchising provides a higher success rate. Unlike starting a business on your own, franchisees build on tried-and-tested business models. A team of experts guides franchise owners to achieve management and operational efficiencies, as well as excellent quality control systems.
Market-wise, franchisees have an advantage in terms of brand recognition. Name recall makes franchise brands popular, making sales easier. Building up new brands requires substantial expenditures to generate brand awareness, and new brands also need to develop a steady clientele.
Investors are encouraged to set up franchises in the Philippines because of its healthy business climate. The Philippines is the 7th largest franchise market in the world, contributing 7.8% to our country’s Gross Domestic Product (GDP) and creating 2 million direct and indirect jobs. With a growing middle class, our country is considered one of the largest franchise markets in the Southeast Asian region. Eating at a popular establishment or owning branded items signals societal status in one of Asia’s most social media savvy populations. That is people in the Philippines
In what sectors can would-be franchisees and those seeking to expand their business invest?
Of the two basic franchise categories, food expectedly takes precedence over non-food. Food makes up almost half (43%) of the estimated 1,800 franchise brands in the Philippines. According to your Association’s data, food franchises have an aggregate value of PHP 538 billion or USD 10.8 billion.
Pandemic or not, the Philippine food service sector is growing as demand for convenience grows. The liberalized retail trade landscape and, to some extent, the reduction of import duties have contributed to the growth of the food service sector.
In Philippine manufacturing, food accounts for nearly half of its total output, growing at an average annual rate of 8 to 10% per annum. This excellent growth prospect stems from the country’s resilient economy and strong consumer base.
Almost all, or about 90%, of the food and beverage (F&B) processing industry’s output, is consumed domestically. The growing consumption, in turn, contributes to the rapid expansion of the processed F&B subsector.
This trend presents excellent opportunities for raw material and high-value ingredient producers. As quality and efficiency improve, such producers can exploit export opportunities due to the country’s strategic location and free trade agreements with other countries.
On the other hand, the non-food service and retail subsectors each serve close to one-third of franchise brands in the country—service accounts for 29% of franchise brands in the Philippines, and retail, for 28%. The contribution value of retail and service franchises amounts to PHP67 billion or USD1.34 billion per category.
Non-food franchising trends cover health and beauty products, affordable indulgences, clinics, laundry services, homeschooling, and microfinance among others.
How is the Department of Trade and Industry supporting franchising?
Many franchisees are micro, small, and medium enterprises (MSMEs). DTI is directing its efforts to support MSMEs post-COVID-19 by helping them access capital, access technology, and access to marketing resources.
Through SB Corporation, DTI has been extending financial assistance to MSMEs to provide them access to capital. We assist them in their debt obligation payment, repurposing existing business capital, and acquiring new technologies and systems. We help them adjust their business processes to adapt to the new normal.
SB Corporation has several financing tracks for MSMEs. The RISE UP Multi-Purpose Loan, RISE UP Turismo Loan, and RISE UP Tindahan Loan have soft term loans and can be easily accessed.
SB Corp’s Pondo Para sa Pagbabago at Pag-Asenso (P3) Program provides loans in the poorest provinces where participating microfinance institutions (MFIs) and SB Corp can operate. It is for micro-enterprise borrowers with asset size not exceeding PHP3 million, and All-in interest rate and service charges do not go over 2.5% per month. P3 is available for market vendors, agri-businessmen and members of cooperatives, and industry associations and co-operators.
Common to all businesses now is digitalization. To be competitive and to stay relevant, MSMEs must adopt digital strategies and utilize e-commerce.
For MSMEs operating in the Southeast Asian region, we have the learning platform ASEAN SME Academy. It is co-administered by DTI, Philippine Trade Training Center.
Finally, DTI conducts boot camps, seminars, and business matching events to promote franchising to overseas Filipinos and export Philippine franchises overseas. Through the assistance of our Foreign Trade Service Corps, we also provide market intelligence to identify the current worldwide trends in the franchising industry and help franchisees in decision-making. These efforts will not only help expand the industry but will also generate income and jobs for our people both locally and internationally.
More than digitalization, we will promote science, technology, and innovation, or STI, along with digital technologies, as our main drivers for economic development. STI can bring about new goods and services, increase production efficiency, develop new industries, and strengthen industrial linkages. These improvements foster industrial competitiveness, contributing to more jobs and income opportunities. Hopefully (12:37 timestamp)
As we build back better, our assistance to MSMEs will be guided by some strategic actions.
The first strategic action is to embrace Industry 4.0.
The Fourth Industrial Revolution brings unprecedented change. It is merging our biological, physical, and digital worlds. And it is shifting our approach to development.
Industry 4.0 technologies like AI can help improve enterprises and industries, increasing the share of STI-intensive sectors in the country’s GDP. The potential is significant enough for us to find it worthwhile to build innovation centers, which I will talk about now.
The second strategic action is to develop innovative micro, small, and medium enterprises or MSMEs, including startups.
As the backbone of our economy, MSMEs comprise 99.5% of about a million registered businesses in the Philippines. MSMEs employ 63% of the workforce and contribute almost half of our gross domestic product.
With MSMEs able to create livelihood and promote prosperity, we seek for them to be able to scale—from micro to small, small to medium, and medium to large.
DTI seeks to address the constraints of MSMEs in their access to finance, technology, and the market. It also aims to enable MSMEs to compete better, adapt to digital transformation, integrate into domestic value chains, and penetrate global value chains.
The third strategic action is to promote regional development by strengthening regional innovation and entrepreneurship ecosystems.
To be responsive to nuances in the country’s regional growth and development, one direction is to support regions and urban centers to specialize where they have the most competitive advantage.
In focusing our efforts on regional industrial transformation, we aim to use STI and entrepreneurship as means, for example, to modernize our agro-industrial activities.
The fourth strategic action is to create and foster an enabling economic environment.
This action entails policies that attract investors and entrepreneurs to the Philippines. Aside from rationalizing regulations, it would also cover building competitive physical and digital infrastructure. Doing so reduces the cost of doing business and attracts more investments.
Aligned with our STI-driven thrust, we are establishing the Center for Artificial Intelligence Research and the Industry 4.0 Pilot Factory. These two centers can drive the development of innovative products and services. (adlib timestamp 16:59)
The Center for AI Research or CAIR is among our initiatives to make the Philippines an AI Center of Excellence.
Currently, the Philippines already hosts more than 50 tech startups that use AI as their core technology. If we grow the AI ecosystem further, it has the opportunity to contribute 92 billion US dollars which represent about 12% of GDP by 2030, according to EDBI and Kearney.
CAIR will be instrumental in boosting AI’s contribution to the economy. With the support of private sector partners, CAIR will be a hub where data scientists and researchers can perform collaborative AI R&D. The R&D can then lead to the development of AI products and services, provide AI training programs, and support the digital transformation of industries.
Complementary to the CAIR, the Industry 4.0 Pilot Factory will host pilot, demonstration, and learning laboratories for relevant technologies. These include robotics, intelligent manufacturing, and cyber-physical systems.
This Pilot Factory will further serve as a hub for cutting-edge technologies and solutions, a space where MSMEs, researchers, and universities will have hands-on lessons on robotics, automation, and smart factory, among others.
Aside from providing a learning and co-working space, the Pilot Factory can serve as a prototyping sandbox and a platform to showcase the use cases of products.
In embracing Industry 4.0, we aim not just to transform our industries. We seek to enable MSMEs, too, so that they can upscale and adapt to digital transformation. By embracing digital transformation, MSMEs can operate efficiently, reduce costs, and earn profits.
Together—franchisers and franchisees, consumers and producers, government and the private sector, we will bounce back better. We will turn the wheels of the economy again. We will make economic transformation happen in the Philippines.
Maraming salamat sa inyong lahat!
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Date of Release: 20 September 2022