Written by Ethisphere
While the Philippines have often been overlooked by many scions of world industry for other countries in the region, the country is becoming increasingly popular for multinationals seeking to develop Asia-Pacific operations. True, the country presents a history of political turmoil, as well as regional dispute between the predominantly-Islamic southern island of Mindanao and the rest of the country, which is largely Christian. However, since the infamous Marcos regime, the country has successfully held democratic elections dating back to Corazon Aquino in 1986. Further, a 2012 peace deal paved the way for greater autonomy for Islamic Mindanao.
While there are certainly developmental struggles ahead, the economic future is bright for the Philippines.
The level of formality one will encounter in the Philippines is certainly less than that which would be experienced while doing business in countries like China and Japan. However, there is still a marked respect for business hierarchy. At the same time, many Western traditions, such as informal gesture of shaking hands, has largely been adopted in Filipino business culture. However, the respect for rank is still expected here, so if one is meeting with a Filipino counterpart of higher rank in the organization, it is important to allow them to initiate the handshake. If they do not, a verbal greeting is acceptable. As relationship-building in business is paramount to successful business dealings in the Philippines, following the initial meeting, a Filipino counterpart may either hold the handshake for an extended period of time or use the other hand to cover yours, both of which are signs of respect. They may also pat you on the side of your arm as a sign of friendship. If the greeting is between a man and a woman, the handshake is frequently substituted by the beso-beso, which is a kiss on both cheeks, also meant to connote respect.
Face-to-face meetings are valued in the Philippine business environment, and are strongly preferred to phone conversations and virtual meetings. Keep in mind that the concept of time in Filipino culture is very fluid. As such, it is common for meetings to begin 15-20 minutes later than the scheduled time. However, it is very important that a foreigner arrive on time, as a late arrival could be construed as a sign of disrespect. Appearances are paramount in Filipino culture, so ensure to be fashionably and professionally dressed. Women should avoid wearing slacks or pants to a business meeting, as this would be considered immodest and unprofessional.
One can expect business meetings to begin with an extended informal conversation, once again highlighting the importance of developing a relationship before conducting business dealings are attempted. Once again, the concept of time is relative in Filipino culture, and one can expect decisions to be made much more slowly than is common in Western cultures. Also, expect business decisions to be reached after a sense of camaraderie has developed. It is common to be invited to lunch, dinner or drinks with the Filipino counterpart, which will help assist in the development of a personal connection, which is integral to a successful business relationship.
The sharing of business cards is almost mandatory in business greetings. You should be prepared to immediately share a business card, which should be presented with both hands, with your name facing your counterpart. If your title is less than that of your counterpart, it’s possible they will not reciprocate, sending the message that if the meeting is successful, they will follow up with you. If they do share a card with you, make sure to briefly examine their card, which is a sign of respect.
Gifts are not mandatory for business meetings. However, if you are invited to dinner at your counterpart’s home, it is expected that you will bring candy, flowers, or another small token gift. Gift wrapping is very important. Do not expect the gift to be opened immediately. Please note that you should avoid bringing chrysanthemums or white lilies, which are traditionally used for funerals. Also, following a dinner, it’s common to send a bouquet or a fruit basket. Further, within a week of the event, it’s important to send a handwritten thank-you note as a sign of respect.
Dinner and Social Events
As stated previously, the development of a personal connection with your Filipino counterparts is integral to successful business dealings. As such, it is very common to be invited into their home for dinner. Follow the aforementioned gift giving suggestions in this scenario. Also, when invited to a Filipino home, keep in mind that time is fluid, and the event will start 15-20 minutes late. Compliments on the host’s home are acceptable; however, refrain from referring to the host’s wife as a “hostess,” a word which has a very negative implication in the Philippines. Also, wait to be escorted into the dining room, and don’t move to sit down until directed. The order of seating is very important in Filipino culture, as guests will be arranged in order from the most senior to the most junior – to break this would be considered quite disrespectful.
It is also common to have elaborate dinner parties, followed by hours of live entertainment lasting late into the evening, such as karaoke. In this scenario, don’t be surprised if you are invited to sing.
5 Compliance Issues in The Philippines
I. Political and Civil Unrest
While the country has made strides in recent years to curb rampant political corruption, there remains significant work to be done. As recently as 2001, there was a successful military-backed civilian coup to oust then-President Joseph Estrada and replace him with Vice-President Gloria Macapagal Arroyo. Further, continued struggles with Islamic separatists threaten the political structure. Indeed, one of current President Benigno Aquino’s primary initiatives is a proposed agreement with predominantly-Islamic Mindanao. While he has made significant strides, extremist factions within Islamic rebel groups continue to attempt to derail the process and provoke renewed fighting with violent attacks.
Further, another risk to continued political stability is presented by the relatively slow manner in which President Aquino’s agenda items are coming to fruition. Should he be unable to accelerate some of his proposed reforms, his political base could weaken. This could also make it more difficult for him to help ensure the continued push for reform beyond his administration. If he is unable to maintain political goodwill by successfully completing reform initiatives, this could lead to the election of an opposition party candidate in the 2016 elections, and the likely subsequent abandonment of his initiatives, many of which are aimed at creating a more free-market economic system.
Deal With It
The best policy multinationals can adopt is one of non-interference. Should violence or political rallies occur, companies should maintain as much distance as possible from the situation. There is typically enough lead time for companies to be able to plan for and mitigate these types of situations prior to the actual occurrence, so it is vital for companies and their in-country representatives to stay apprised of these types of developing situations. As is the case anywhere, in the eventuality that conflict does occur or is developing, the most important thing is that companies and their employees stay far away from the situation, both to make employee safety paramount, as well as to ensure that no connection can be made to the organization.
II. Political Corruption
Strong efforts have been made to eradicate corruption from the political climate in the Philippines. However, it remains a significant issue for multinationals looking to conduct business there. Even at the time of the writing of this article, one of the main problems President Aquino faces is dealing with the charges he brought against former President Arroyo. The charges have to do with rampant corruption throughout her tenure as president, dealing with wide-ranging issues from electoral fraud, misuse of public funds, and a graft case pertaining to a broadband deal she reached with ZTE, a Chinese company.
Deal With It
Companies need to maintain a close eye on the evolving situation with former President Arroyo, as whichever the outcome, any legal decision related to corruption will have business implications, especially considering that one of the charges is directly related to a multinational company seeking to do business in the Philippines. It is crucial for companies to ensure that government relations protocols are firmly in place and adhered to, especially considering the fact that one of President Aquino’s major initiatives is intended to increase public-private partnerships, many of which will directly pertain to multinationals doing business there. The best way any company doing business in the Philippines can mitigate some of these risks is to develop the strongest ethics and anti-corruption programs possible, and to ensure they are communicated to and adhered to by all stakeholders.
III. Gender Inequality
Some may consider gender inequality to be a non-issue in the Philippines. Hopefully, this will soon become the case, however the fact is that even though women are increasingly becoming more common in the ranks of government and corporate leadership, this pertains only to members of the upper strata of socioeconomic classes. Once one gets past this small minority, it quickly becomes apparent that a gross inequality exists between men and women in the masses of Filipino society. While this paradigm is beginning to shift, a change from the culturally-predominant machismo attitude toward women is likely to be a slow one. Indeed, studies have shown that women performing the same job as a male counterpart in the Philippines generally earn about 50% of what the male laborer makes.
Deal With It
While company hiring practices among multinationals generally mandates the elimination of this type of gender-based pay inequity, they need to ensure these policies are being adhered to throughout the local company representation in the Philippines. While company policy may strictly forbid this type of disparity, the reality is that local laborers may not be aware of the policy, and as they progress to the point where they are in a hiring role themselves, the company then becomes at risk of locals reverting to inequitable hiring practices. It is therefore highly important that companies ensure that employees are educated as to company best practices, and that said practices are being adhered to.
IV. Public-Private Partnerships
As stated previously, one of the focal points of President Aquino’s platform is the emphasis on the creation of public-private partnerships. The public-private partnership scheme is meant to promote foreign direct investment in the Philippines. While this is certainly a positive indicator for potential foreign investors, the truth is that – in keeping with the traditionally slow rate at which decisions are made in the Philippines – the agenda is coming to fruition extremely slowly. This presents political risk from the standpoint that President Aquino risks diminishing political support. It also contains the inherent risk for foreign investors to be tempted to rely on bribery in order to achieve their goals more quickly.
Deal With It
As in other scenarios, it is vital for companies to be well-apprised of the political climate of the Philippines, and to any developments in the regulations surrounding privatization and public-private partnerships initiatives. Further, legal and compliance officers must ensure that in-country representatives are well-trained as to the potential pitfalls in business negotiations, and very aware of organizational guidelines and expectations around ethical behavior. They must also be vigilant in monitoring in-country representatives to ensure the company is being accurately and positively represented across the full scope of its operations within the Philippines.
V. Policy toward Foreign Investment
There remain many state-owned enterprises in the Philippines, and President Aquino is actively seeking to strategically privatize them in order to help promote an increasingly free market economy – for example, in the near term, the allowance of retail competition and full access in the electricity sector are expected (Economic Intelligence Unit). While foreign investment is increasing, and is indeed a focal point of President Aquino’s administration, similar to the public-private partnership initiative, it is a slow change.
This is in large part due to the fact that access for foreign investors is allowed on a case-by-case basis as opposed to any type of constitutional amendment. This again opens the door for cases such as the one that alleges former President Arroyo of corruption in her deal with ZTE. Also, a tariff-cutting program is available to foreign investors, however, it is also another quite politically-contentious issue. The result is that some areas are able to liberalize faster than others, depending on prevailing political pressures in the region or sector of industry. These factors combined again open the door to temptation for organizations to cut bureaucratic corners in order to achieve their objectives and mitigate operational risk.
Deal With It
Again, it is of paramount importance for organizations to perform meaningful due diligence on all employees they choose to represent them in any negotiations within the Philippines. Once they are assured of the integrity of these representatives, companies must establish robust ethics, compliance and anti-corruption programs internally and ensure they are clearly defined and communicated to in-country representatives. These representatives must then perform necessary due diligence on their counterparts within the Filipino government, ensuring they are not at risk of exposing the company to any risk presented by a government representative, official or department with a history of corruption or bribery allegations. In all dealings, company representatives must behave in strict accordance with the companies’ stated best practices outlined in their ethics, anti-corruption and compliance programs.