Philippines Entry StrategyCan we manufacture our own hardware in the Philippines?

Christopher A. Robinson

2012The Collective: Software design

Table of ContentsExecutive Summary 2

Section I: External Analysis 3

Target Market:Demographics…………………………………………………………………..……………………………………………. 3Psychographics………………………………………………………………………………………………………………… 4Geographic………………………………………………………………………………………………………………………. 4

Environmental:Politics ……………………………………………………………………………………………………………………………..5Social ………………………………………………………………………………………………………………………………. 6Economics ………………………………………………………………………………………………………………………..7Climate ……………………………………………………………………………………………………………………………. 8Natural Hazards ………………………………………………………………………………………………………………. 9

Distribution:Home Country factors ……………………………………………………………………………………………………… 9

Section II: Internal Analysis ………………………………………………………………………………………………………………10

Company Resources:Competency …………………………………………………………………………………………………………………….10 Our Resources ………………………………………………………………………………………………………………… 10

Products and service:Standardization ………………………………………………………………………………………………………………. 11

Company expectations:Expectations ……………………………………………………………………………………………………………………. 11Short Term Expectations …………………………………………………………………………………………………. 12Long Term Expectations ………………………………………………………………………………………………….. 12

Section III: Recommendation …………………….……………………………………………………………………………………..13

Bibliography …………………………………………………………………………………………………………………………………….14

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Executive SummaryThis entry strategy document is examining the possibility that we could enter the

market of the Philippines and distribute mobile communication and gaming hardware.

Although our company specializes in software, we believe that there is a niche in the

Filipino market that we can fulfill successfully with hardware offerings.

Section I of the entry strategy document is the analysis of market factors such as

our target market, the environment that we will enter, and how we will distribute our

product should have if we choose to enter this market.

For our target market analysis we look at the demographic factors of the

Philippines and decide if it is a good fit for our product. Next, we take a look at the

mindset and get to know the roots of the Filipino culture so that we may be careful about

the messages that we send with our company and our product. Thirdly, we analyze the

geography of the Philippines so we can get a feel for where we would like to establish

ourselves and how we will distribute our product.

Environmental analysis begins with some insight into the political scene in the

Philippines and whether we should prepare for any issues in the course of conducting

business. The social factors of any market are important and the Philippines are no

exception. We need to pay attention to economics in order to prepare and build a

foundation for the future success of The Collective. The Philippines has a climate that

we should be well aware of because it could lead to higher cost and slower business in

the rainy months.

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How we distribute our product is just as important as how we build it. The

analysis takes a look at the aspects of the Philippines that are available and that we can

take advantage of.

Section II of the entry strategy document looks at our internal factors. This allows

us to ultimately set realistic expectations should we choose to move forward. It is at this

point that we remind ourselves who we are, what resources can we draw on, and what

our plans are for the future.

The final section is my personal opinion of whether we should move forward into

the Filipino market with the factors being what they are, the plan being what it is, and

the resources that we have.

Section I: External Analysis

Target Market:

Demographics:

The Philippines has a population of 103,775,002, according to their last census [2].

This is a large market that we could possible enter into. What is interesting about the

population is the fact that 61% of their population is between the ages of 15-64 years of

age and the ages 14 or younger make up 34.6% of their population [2]. This is a very

young population in comparison to other countries in the Asian Pacific. Comparing our

product to another, the Nintendo Ds is primarily designed for males ages 25-40,

however a large part of our consumers are female and those younger than 25. So

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although we believe our demographic to be males 25-40 for this product, there is a

strong interest in our product from those not included in our target demographic.

According to CIA.gov the median age in the Philippines is 22.9 years [2]. This is a good

situation because not only will we have customers as soon as we enter the market but

we will have future customers in the years to come. If we can diversify the software

offerings to capture the young and the more mature, we can position ourselves for years

of success.

Psychographic:

The Philippines has a rich culture that has many roots in Hispanic, Chinese,

Indian, Arab, and Malayo-Polynesian cultures. The Filipinos are a proud people with a

strong sense of camaraderie, spirit, and kinship toward one another. They have a

background of western colonial rule from the Mexicans and Spanish, giving them strong

ties to Hispanic culture [5].

Geography:

I believe that the geography of the Philippines could be a key factor in how we

choose to approach the distribution of our product. The terrain is mostly mountainous

with many coastal regions. This is where many of the most populous cities reside and

should be the focus of our distribution. Outside of the urban areas are mostly mountains

and generally rural areas. I believe distribution should be handled in a few ways

because the four most populous urban areas only make up approximately 14% of the

Philippines population [2]. Therefore we would need to find ways of getting product to the

other 86% of the population that does not live in those urban areas.

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There are many ports and airports throughout the Philippines because the

Philippines are made up of over 1000 small islands. From a distribution standpoint we

could use these ports and airports to export our product all over the Philippines and

throughout the pacific. The Philippines has excellent trade relationships with Japan,

China, and other major economies where our product would do well with the

demographics and the lifestyles of those countries.

Environmental Factors:

Politics:

The Philippines is a republic government with a legal system that contains a mix

of civil, common, and Islamic law. While their legal system is somewhat different than

ours, I believe that we will have no problems doing business in the Philippines. They

have strong intellectual property laws and they uphold them [6]. A problem could arise

because the government does have some control over some media. Throughout my

research, I have not found too many incidences where the state owned media provided

any problems for businesses that manufacture and distribute electronics. From a

marketing stand point it would be paramount that we make sure that we can advertise

through the television medium as over 60% of the population owns a television.

Pollution is a problem in the Philippines, particularly in the urban areas. The

Government is attempting to regulate businesses and industries to cut down on this

issue but progress is slow [2]. I believe that we should enter this market and have a very

positive, green initiative and make sure that those facts are public. Costs will be higher

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but it will be well worth the amount of good will that we will have with the citizens of the

Philippines and their government.

Social:

The official languages of the Philippines are Filipino and English. There are

however eight major dialects spoken throughout the country [2]. We will need to take

these into consideration when it comes to the design of our user interface and how our

product communicates with our customer through marketing. There is a mixture of

religions in the Philippines. The main groups being Catholic, Muslim, and other arms of

Christianity; all of which are easily offended. Therefore, we need to be careful on any

logos, mascots, sayings, and subject matter that are associated with our product. A

mishap on any one of those fronts could spell doom for our product early. We really

want to make sure we do our due diligence if we are going to proceed in this market.

The people of the Philippines are well educated. I draw this conclusion from their

literacy rate of 92.6% and the fact that they too go through a minimum of 12 years of

education much like we do here in the United States [2]. The importance of the education

levels come into play if we decide to proceed on manufacturing within the country. We

would have an educated labor force that we could work with and teach the skills that are

necessary to produce our product.

A large population of the Philippines has already moved to mobile phones and

are considered to have an “on the go” lifestyle, especially in the urbanized area. There

are 79.896 million cellular phones in use in the Philippines [2]. With this “on the go”

attitude, mobile gaming is a logical next trend to follow. Here in the United States,

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mobile phones were a growing trend for a decade before the idea of handheld gaming

systems became available. For example, over the course of seven years Nintendo was

able to sell 55.12 million units of its DS handheld system at the price point of $149.99 in

the United States [4]. I realize that Americans have more disposable income and our

price point will not be as high, but what this example shows is that mobile gaming did

follow the rise of mobile phone use. We will have to compete with Nintendo in this

market but they do not have a very strong foot hold here in the Philippines.

Economics:

The Philippines has an overall unemployment rate of 7.2% [2], which is not bad

considering we are still feeling the effects of the 2008 financial crisis. The Philippines

has handled the recessions well because of its limited exposure to toxic international

securities and low dependence on exports to affected countries. There is particularly

high unemployment for those who are ages 15-24, which is 17.4% [2]. This means that

should we choose to manufacture within the Philippines we would have an immediate

impact on their economy and have workers that are readily available to work.

A particular red flag regarding the economy of the Philippines is that fact that

they do not have a handle on their inflation rates. In 2011, they had inflation of 5.3 %.

That is a rise from the 2010 inflation rate of 3.8% [2]. Inflation can be a large problem for

our company because it could raise the costs that we incur to gather the materials that

we need for manufacturing, raise wage rates, and shipping costs to export our product.

Depending on if this inflation remains ever increasing; it could work in our favor. We

could borrow the money from local banks that we need to cover those rising costs and

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the inflation will help us pay those debts easily and have excellent credit standing with

the local banks.

The Philippines has excellent trade agreements with other powerful Asian

countries throughout the pacific, particularly with Japan (14.1% of imports) and China

(13.6% of imports) [2]. These relationships are noteworthy because we could have

particularly good access to resources with lower shipping costs because the trade

routes are already there and the relationships between the countries are there.

Climate:

The Philippines enjoys a tropical marine climate which plays host to monsoon

seasons throughout the year. Monsoon season can last as little as three months in

some parts of the country to six months in other parts of the country [1] [3]. During the

monsoon season business is leaner as people are more willing to stay home than go

out shopping. On the positive side of that point, more people may purchase our product

in preparation for the rainy season because they will need home entertainment in spite

of going shopping. On the other hand, our sales during the rainy months will be slim.

Another drawback of the climate of the Philippines is the abundance of humidity

throughout the year [1]. Humidity can be the death of many electronic devices if they are

not designed and executed carefully to accommodate the heat and humidity. There is a

tradeoff that we need to be well aware of as far as keeping humidity out is concerned.

We can keep humidity out of the devices but that may require us to contain more of the

heat that is generated by the device within the device. This too can shorten the life of

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our product. We do not want to have a lot of hardware issues with our product because

if that happens we can easily and quickly lose a consumer base.

Natural Hazards:

There are several natural hazards that affect the Philippines that I believe that we

should be aware of. First of which being typhoons and other dangerous tropical storms,

according to the Philippine Atmospheric Geophysical and Astronomical Service

Administration(PAGASA) the Philippines is affected by approximately 15 typhoons and

year are hit directly by a few of them [1]. The Philippines are also plagued by landslides,

active volcanoes, earthquakes, and tsunamis. All of these natural hazards need to be

taken note of and taken seriously. There are insurance matters to think about, along

with the knowledge that we may be shut down anywhere between a few days of a few

weeks at any given time.

Distribution Factors:

Home country factors:

The Philippines has several major industries at which its labor force is trained or

requires little training. One of those industries is the electronic assembly [2]. If we were to

base our manufacturing operations in the Philippines we would have access to a labor

force that already possesses a skill that we require. This combined with their relatively

high unemployment rate of the younger population give us a remarkable starting point

for beginning manufacturing in the Philippines.

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The Philippines is in a prime location to distribute our product throughout the

Asian pacific. Trade relationship with other countries are in excellent shape and

because the Philippines are made up of so many islands there are many ports what we

can make use of to get our product to other countries.

Section II: Internal Analysis

Company Resource Factors

Core Competency:

Here at The Collective, we are the best at what we do because we have high

standards. It is our uncompromising standards and our dedication to the highest quality

of software that we are even thinking about jumping into a new market. That being said,

we are going to do what we do best in a new market.

We are primarily a software design company and the jump to producing

hardware is a big one. However, we have our creative processes that have helped us

create innovative software to fill any niche we could find. We will put those same

processes to work for us as we seek to embark on a new horizon.

Our Resources:

We have the best management team to oversee our entry into a new market.

Beyond that, our resources are limited. Effective management has seen us through our

other endeavors and there is no question that we will need strong leadership going

forward. Our best resource is our management team and their leadership. To best

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utilize this resource we should place our management team in key positions to make

quick, effective decisions.

Product and Service Factors

Standardization:

Standardization is important in any industry, especially electronics.

Standardization allows us to keep costs low and minimize outliers during production.

We should pay close attention to our competitors and learn from their mistakes and

successes.

Company Expectations

Realistic expectations:

I believe that we can expect to see slow sales at first but things would soon pick

up. What will be significant in driving our sales is the variety of games, apps, and

software that we can provide our customers. In order to accomplish that we will need to

rely heavily on our software designers here in the states and open our platform to user

created content. We would be following in the footsteps of Nintendo, Sony, Google, and

Apple; those of which already have made their marks on this market.

The market being what it is, if we move on this market soon, I believe that we will

able to sell 500,000 units to our target market within the first year of our product

launching.

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Short Term:

In the short term we can expect to sell 500,000 units to our target market. It is in

the early stages that we should consider their feedback and make necessary

adjustments to our product and have a re-launch a year later. This re-launch would

contain improvements that we came up with through our research and development

department and consumer feedback. After the re-launch I would expect demand for our

product to be higher and we should sell 1.5 million units our second year into the

market.

Long Term:

In the long term we should expect that our competition will have taken notice of

us. It is at this point where we really need to be pushing the innovation on our product. If

we have early success and sit on it our competitors will remain in having the upper

hand. We need to pay close attention to our specific customer’s needs and provide

them with affordable upgrades and applications.

We should also look into diversifying our product in the market as well. Have

products for casual, business, and enterprise users and provide them with support that

focuses on their single problem. We will beat the competition with our software and our

customer service.

At this time I would still expect us to have the smallest portion of the market

share but I would expect that we would be growing. I expect that we will have sold 5

million units by this point and have an idea of how we should proceed in the future.

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Section III: Recommendation

With all of the factors being what they are, I believe, that we should enter this

market. This market has an abundance of young customer who knows how to use,

assemble, and create software for our product. Since this is a new endeavor for us and

there are already so many other players in the game, it is my personal opinion that we

enter this market in a distributive capacity.

There are many manufactures of electronics in the Philippines and we could

contract the work to them for assembly and work with a partner company to distribute

our product. We will need to market ourselves as devoted to customer satisfaction, an

open platform device, and built and distributed in the Philippines. Our customer service

on our devices will stem from our expertly crafted software and from the support that we

offer for any issues that the customer may have with the software. Our device will be a

completely open platform that allows for user created content that is deemed safe and

appropriate for the user. Although the platform that our mobile device run is made in the

United States, the device itself will be built, designed, and distributed in the Philippines.

This may give us a little nudge above the competition and tip the consumer’s buying

decision in our favor.

Then there is the option that we can explore where we export our product form

the Philippines to other pacific Asian countries. China, Japan, and Malaysia both have

booming mobile platform markets and there a many other countries in the Asian Pacific

that may have a demand for our product as well.

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Bibliography:

1 - The Philippine Atmospheric Geophysical and Astronomical Service Administrationhttp://kidlat.pagasa.dost.gov.ph/cab/statfram.htm

2 - CIA- Factbook Philippines (based on the 2000 census)https://www.cia.gov/library/publications/the-world-factbook/geos/rp.html

3 - Philippines Department of Tourism, 2011http://www.dotpcvc.gov.ph/Visitor%20Information/people.html

4 – Vgchartz, 2012http://www.vgchartz.com/analysis/platform_totals/

5 – Filipino Culture, 2012http://www.everyculture.com/No-Sa/The-Philippines.html

6 – Intellectual Property Laws, 2012http://www.bsa.org/country.aspx?sc_lang=en-PH

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