A Foresight of Tekknon PLC in the Philippines

Introduction

Nine years ago, Tekknon Corporation—now known as Tekknon PLC—was founded, with the hopes of introducing breakthrough transportation and communication innovations to Americans. It took on London on its fourth year, where its portable communication devices ranked to the top. Today, Tekknon PLC has 28 subsidiaries across the United States and Europe. Each are involved in the manufacture and distribution of transportation and portable communication devices that surpass industry standards and the consumer’s expectations.

In view of its tenth year anniversary, Tekknon PLC’s Mobile Communications Innovations Bureau came up with two new products: the Tekk Project, a slideshow-enabled phone that may be connected directly to a projector; and the VirtuaTalk, which allows two VirtuaTalk users to see a hologram of each other while speaking with their mobile phones. These products are bound to be introduced in a new territory in Asia—the Philippines.

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In Europe, there is an old belief that the Asian market is where a company can get unlimited successes and opportunities (Elliot 2004). This view may be based on the fact that Asians have many needs that Westerners can answer, as evidenced by the success of innovations such as the computer, elevator, escalator, and the ballpoint pen. It may also be because historically the Asians, as Schuman (2005) puts it, are lovers and faithful believers of the American dream, a life they can take a piece of through the imported goods that are readily available in department-store shelves and racks.

Also read about negative effects of globalization in the Philippines

The Asian’s buying power is rising fast. In fact, statistics show that in the affluent areas, today’s Asian shoppers may spend as much as typical Americans do. It should be noted that Asians are also unparalleled in a sector where Tekknon PLC largely operates—mobile-phones. Mobile-phone ownership is at a record high in the region.  In China alone, Nokia has released a total of 900 mobile phone models, compared to the 80 models available in the United States. Samsung, another mobile phone manufacturer, also boasts of an average one new model per week to answer the fast turnover of cellular phone models in the region (Schuman 2005).

The Philippines, the “pearl of the orient seas,” with 22 million cellular phone users and whose 86% of the 20-year-old-and-below population owns a mobile phone according to Toral (n.d.), is also proof that Asia is the most happening place in business today, too hard for any company to resist. In a study by the Consultative Group to assist the Poor (Manila Standard Today, 2005), Filipinos have been found to enjoy credit too, even withdrawing savings to pay up debt.

This shows that the high consumerism in the country. However, the Philippines is not a popular choice for a company’s Asian expansion. The United States periodically issues warnings on the Philippines fragility to terrorism, the exchange rate of the peso against the dollar is continuously fluctuating, and the political turmoil in the country ceases to stop.

Taking on Asia: A Foresight of Tekknon PLC in the Philippines presents the advantages and difficulties that Tekknon PLC may encounter on the course of its expansion in the Philippines. In the end, the question will be: should Tekknon go Filipino?

A Flawed Pearl

One of the major problems of investors in the Philippines is the economic difficulties that the present government is going through. The Philippines Country Study (2006) states that its growing $32 billion foreign debt is one major issue. Even if a company does good in the Philippine’s local market scene, international contacts may choose to reject them unless they transfer to a nearby location in China or Singapore.

The Exchange Rate

The Philippines is currently enjoying better exchange rate days, as with some other Asian countries, than it did in the past years (Fischer 1999).

Over and undervaluation is also a problem in the region. Edwards (2001) stated that by the end of 1994, the Philippines is among the Asian countries whose currency is overvalued. The Philippine peso, however, was undervalued by the opening f 1997. Edwards further states that some studies reveal that the overvaluation in the Philippines has been going on since 1992.

Exporting and Licensing

Licenses and registration certificates must be secured before Tekknon commences operations in the Philippines. The office of the Securities and Exchange Commission in the Philippines spearheads the licensing and certification for both local and foreign investors (Department of Trade and Industry, 2006).

The Philippine government also gives incentives to foreign investors. According to the Department of Trade and Industry (2006), applicable incentives according to the company’s industry may be filed with respective economic zone authorities. In these two areas, bureaucracy and red tape are some of the foreseen problems. Rodriguez (2002) claims that bureaucracy is rampant in the Philippine government. While it is not in itself altogether negative, it has led to a culture of money-making instead of organization.

The Philippine government has also set restrictions in the sectors in which 100% foreign ownership is allowed. According to the Department of Trade and Industry (2006), corporations involved in advance technology or providing work for at least 50 workers, as stipulated in the Foreign Investments Negative List, were limited to a pay-in capital of no more than $100,000 and no more than 50% ownership. Control of the operations will also pose a problem as majority of the voted officers are required to be Filipino citizens.

Small Business Competitors

The business base of mobile communications in the Philippines is already big and established. Almost 33 million mobile phone users are recorded in 2004 (Toral, n.d.). This accounts a big percentage of the 80 million Filipino consumers (Philippine Business Magazine 2005)

Due to the deregulation of the country’s telecommunication industry, a sudden boom on the industry occurred that in 2001, the teledensity of the Philippines zoomed to 10.91 from a low 1.21 in 1993 (Digital Philippines 2001).

Despite the Filipino’s fascination to the current technology, the price of mobile devices still matter. Filipinos prefer affordability more than quality. Credit and installment payment plans gain more reception. According to Toral (2005), Filipinos are more conscious on the price than quality or features of products. In a separate report, Toral (n.d.), states that 92% of Filipino mobile users are subscribed to prepaid mobile phone service. This fact does not support the high prices to which the VirtuaTalk and Tekk Project are produced, plus the non-prepaid interface that Tekknon phones currently have.

On top of it all, it should be noted that the venture will require a big fraction of the expansion budget.

Strategies against the Odds

Given the adversities that Tekknon may undergo in its expansion in the Philippines, the Office of the Corporate Treasurer proposes the following:

• The exchange rate is presently stable and, while there is no guarantee that this will be for long term, the Philippine government commits itself to developing the Philippine economy with an open market policy (Advantages of investing in the Philippines n.d.). The Treasury Department shall closely monitor the behavior of the Philippine peso against foreign currencies for the next three months, after which an initial recommendation focusing on the exchange rate issue shall be routed to the board.
• Bureaucracy and red tape in the licensing process may be eliminated by following set guidelines, carefully carrying out procedures, and establishing good relations with people in key offices. Setting a budget for the process of certification and licensing will also help and prevent Tekknon from falling into bureaucratic corruption that will lead to considerable waste of fiscal resources.
• The issue of corporate control is a sensitive area as Tekknon cannot be allowed to own more than 50% of its company in the Philippines but being a public limited company, it will be easy for the company to venture with citizens in the Philippines. On the majority of the board having Filipinos, the Department of Trade and Industry (2006) suggests that foreign investors coordinate with the Securities and Exchange Commission office in the Philippines regarding the distribution of majority ownership of foreign companies, voting arrangement, and license agreements. It should also be studied that the pay-up capital should be no more than $100,000.
• The small business base of hologram and projector phones in the Philippines raises an important question: will the public buy? The local telecommunication sector has not touched base to this high-end technology. Tekknon ay in fact use this to its advantage. Filipinos are on the lookout for technological advancements. Pabico (2005) shared that in one interview, he was told that Filipinos now claim to be the high-tech generation.
• Competitive pricing will help Tekknon PLC get the Philippine mobile-phone market. Installment plans and price strategies should be studied carefully. Filipinos are very price-conscious. With the grade that Tekknon PLC’s new products are manufactured, it may be difficult for the company to immediately make a price cut on the final products as these may result to losses. Thus, preventive price reduction should be planned from the point of manufacturing. 

Conclusion

Tekknon PLC’s view on expanding in Asia, specifically in the Republic of the Philippines, has its share of advantages and difficulties.

The presence of a competitive labor force is one advantage. The Filipino workforce boasts of high-quality output. This, matched with affordable labor costs, makes investing in the Philippines cost-effective. The low cost of high-quality living is also an essential point, especially for foreign companies like Tekknon’s who will have to employ foreign representatives in the Philippines. The location of the Philippines is also advantageous for long-term expansion plans in Asia; and the government has outstanding incentives for foreign investors. (Advantages of investing in the Philippines n.d.).

On the other hand, investing in the Philippines may be equally risky as unstable economy remains an issue in the region. There is no guarantee when the positive economic development of the country at the present will last. Even licensing and exporting and importing pose risks. The business base of Tekknon’s high-end products, and its pricing, may also be a matter of concern.

Given these advantages and difficulties, several strategies have been formulated especially in the foreign exchange rate, business base, pricing strategy, and marketing. It is accepted that more difficulties will surface on the process of deeper researches on the expansion.

Having discussed the intricate problems that Tekknon PLC may encounter in its Philippine expansion, as well as the possible solutions, the Office of the Corporate Treasurer concludes that the advantages outweigh the difficulties and that foreseen difficulties are highly solvable, thus recommending that the processes in expanding to the Philippines begins in the earliest possible time.

Recommendations

After a thorough research and analysis on Tekknon’s Philippine expansion, recommendations have been made.

It is suggested that the Treasury Department closely monitors the exchange rate in the country because historically the Philippine peso can ascend and descend erratically. On the process, the authenticity of the valuation should be studied, as the Philippines has been recorded to have overvalued and undervalued its currency in the past. Extensive media research on the economic weather in the region is needed. Exercising forecasts for the performance of the Philippine peso will also contribute to the study of its predictability.

As early as the market research starts, close coordination with Philippine investing service agencies, such as the Department of Trade and Industry and the Securities and Exchange Commission should be done. This will speed up the process of licensing and certification for exports and imports if the expansion pushes through.

Manufacturing Tekknon’s new phones must be modified in such a way that the product will not be too expensive for the Filipino pocket. Prepaid or SIM card interface shall be added to match the Filipino consumers.

As the project requires a substantial amount to start and sustain, a strict budget should be imposed including possible expenses for the infrastructure, manpower, licensing, exporting, importing, tariffs, and manufacturing costs. Applicable benefits, government incentives, and discounts shall be welcomed. The budget shall not exceed $100,000, as stipulated in Philippine investing laws, but should be sufficient for the full establishment of the company’s facility.

References

Advantages of investing in the Philippines 2006. Retrieved April 27, 2006, from http://www.siongpo.com/invest3.htm

Chapter VI: Philippines Country Study 2006. Retrieved April 30, 2006, from http://www.strategypage.com/articles/operationenduringfreedom/chap6.asp

Department of Trade and Industry 2006. Retrieved May 03, 2006, from http://www.dti.gov.ph/contentment/66/68/59.jsp

Digital Philippines 2001. Retrieved May 03, 2006, from http://www.digitalphilippines.org/research_fullarticle.php?id=2

Edwards, S 2001. Retrieved May 3, 2006, from http://www.anderson.ucla.edufacultysebastian.edwardswoodstock_edwards.pdf

Elliot, M 2004, ‘West meets east’, TIME Asia, 18 October, p.42.

Fisher, S 1999, The asian crisis: the return of growth. Retrieved May 03, 2006, from http://www.imf.org/external/np/speeches/1999/061799.htm

Pabico, A 2005, The lost generation. Retrieved April 30, 2006, from http://www.pcij.org/blog/?p=477

Philippine business magazine 2005. Retrieved April 29, 2006, from http://www.philippinebusiness.com.ph/archives/magazine/vol10-2003/10-9/industry.htm

Rodriguez, D 2002, Weber’s bureaucracy in the Philippine government. Retrieved May 03, 2006, from http://www.gotessays.com/essays/1714/index.php

Schuman, M 2005, ‘Hey, big spenders!’, TIME Asia, 16 May, p.16.

Toral, J 2005 Budget-conscious Filipinos. Retrieved April 29, 2006, from http://www.outsourceit2philippines.com/articles-outsource/2006-Budget.htm

Toral, J n.d., Mobile at heart—opportunities and threats for the youth market. Retrieved April 29, 2006, from http://www.itu.int/osg/spu/ni/futuremobile/presentations/toral-presentation.pdf

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