Running Head: COUNTRY ANALYSIS 1

Country Analysis

Richard Mike Faris

Regis University

December 6, 2015

COUNTRY ANALYSIS 2

Abstract

Globalization is a reality in today’s business environment and requires strategic planning.

Trade barriers, cultural requirements, and country expectations are redefining business strategy.

As the business world shrinks due to globalization, then companies begin to look at expanding

abroad as an option. Knight and Cavusgil (2004) state, “During the past couple of decades, the

volume of global business activity has increased dramatically, and is associated with the

emergence of mechanisms and infrastructures that are facilitating the internationalization of

countless smaller, entrepreneurial firms” (p. 137). The due diligence to understand the

international economic climate a business is entering is increasingly critical to mitigating

potential risks. Analyzing the country’s economic indicators is highly important in the decision

process of expanding abroad.

The paper analyzes the expansion of a telemedicine company into the Philippines.

Furthermore, imports, exports, and the gross domestic product mix analysis provide a quick

macro view of the economic health. The economic indicators including inflationary trends,

interest rates, economic development, employment, fiscal and monetary policies, and population

demographics provide depth to the analysis. Labor force and legal structure, economic history,

external shocks and foreign direct investment analysis provide added value and willingness of

other foreign companies to open abroad. The analysis provides the telemedicine company a

view of the economic health, risks, and potential ease of navigation within the economy.

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Country Analysis

Globalization is increasing important in business strategy and extends beyond large

companies or existing multinationals. Smaller, nimble, and entrepreneurial firms are rapidly

finding new and exciting opportunities abroad as they entertain strategic expansion. Knight and

Cavusgil (2004) state, “Electronic interconnectedness in particular is driving the emergence of a

borderless global economy” (p. 137). As the world shrinks due to globalization, risks and risk

mitigation remain critical components in the strategic expansion.

Expansion risks are exponential when moving abroad due to distance, culture,

regulations, economic conditions, business environment, political stability, and many other

factors. The article Managing Risk Abroad Requires Strategic Foresight (2014) state, “A

midsize company must set its international strategy and mine its resources before deciding how

to manage its risks when expanding abroad” (para. 1). Time spent researching and setting a

strategic initiative are an investment in the future success of a company. The upfront investment

includes companies with existing experience doing business abroad and others who are

entertaining moving abroad for the first time. The purpose of this paper is to analyze the

political structure and politics, economic structure and the economy, imports and exports, and

economic indicators in the Philippines for a telemedicine company.

Background

The roots of telemedicine began with video conferencing between doctors and patients

and dates to the 1970’s. With the advent of lower cost smartphones in 2007 and the iPad from

Apple Inc. in 2010, the telemedicine industry took off. The quality of images in some

applications is sufficient to allow clinical evaluation of injuries, medical condition, and remote

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surgeries. Innovators and developers realized an opportunity to expand video feeds with remote

monitoring and transmitting basic vital signs using devices that plug into the new mobile

technologies. The newer integrated telemedicine systems development expands into disaster

recovery and rural regions across the world in developed and some developing economies. As

the cost of integrated telemedicine drop and accessibility to broadband Internet service increases

underdeveloped markets become primary targets for expansion, including the Philippines.

The Philippines includes over 7,000 islands spread over 3,000 square kilometers with

approximately 1,000 being uninhabited islands. Internet service is available in most areas while

extremely remote areas require a broadband global area network (satellite) for access.

Furthermore, access to traditional health care in remote areas is a challenge. According to

Western Pacific Region World Health Organization (2012), “Achieving Universal Health Care

for All Filipinos is the Philippines Government’s continuing commitment” (p. 1). Telemedicine

technology is uniquely qualified to assist the government in addressing health care and accessing

the most remote areas.

The opportunity for a telemedicine company to invest and expand into the Philippines

requires understanding the economic environment including the political structure and politics.

The telemedicine company involved is a younger entrepreneurial company. Historically

expansion considerations include weighing risk factors. The company is operating in the

America’s, parts of Europe, and Africa. Debt to equity ratio is low, which is unlike most

technology companies. An operation in the Philippines is a consolation for entry into the Asian

area. The potential for public-private partnership is a new direction the company is weighing

potential risks.

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Political Structure and Politics

Understanding the politics and structure provides a picture of government involvement,

stability, and potential barriers to doing business in the Philippines. The Republic of the

Philippines operates on a unicameral congress with a constitution. Multiple similarities exists

between the US, due to the US occupation before granting sovereign rights in 1946. The current

Constitution signed in 1987 followed a period of near autocratic rule under Ferdinand Marcos,

Sr. who ruled for years under the martial law. The constitution limits the presidential term to a

single six-year term with President Benigno Aquino III (current president) term set to expire in

May 2016. According to the Economist Intelligence Unit -EIU (2015), “Mr Aquino's term has

not been completely devoid of controversies and corruption scandals, but he leaves the

presidency with a fairly clean record and the confidence of investors” (para. 1).

The President and Vice President may be from different parties, as the law requires

separate listing. The Philippines has a multi-party system with a large number of candidates for

the upcoming election. Bloomberg Business (2015) states, “The new president will seek to

expand on Aquino’s success in curbing corruption, boosting growth and trimming the budget

deficit” (para. 5). A similar consensus is in the EIU analysis and follows popular unanimity with

the citizens. Furthermore, EIU (2015) states, “Political stability under a new administration is

likely to remain hostage to corruption that remains prevalent in the political culture” (para. 5).

Political corruption will continue to be an issue shortly. The current administration has

made inroads in transparency, and if the new President next year continues in this venue. Then,

hope over the longer run to reduce corruption is probable. An unresolved issue is the

Bangsamoro Basic Law (BBL) resolution to put the continuing political issue of militant Islamic

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region to rest. The BBL is an explosive issue and needs resolution with the three front-runners

for President approaching the issue from different levels. Furthermore, the constitutional

separation of powers plus ongoing reforms bode well politically for the Philippines. Corruption

and BBL are a negative weight in politics and political structure, which need consideration. The

prognosis is neutral in the political area while the economic structure that government fosters is

positive for Philippines expansion.

Economic Structure and Economy

The economic structure of the Philippines experienced a shift to a mixed economic

structure in 1987. Michigan State University (n. d.) state, “The Philippines has a mixed

economic system in which the economy includes a variety of private freedom, combined with

centralized economic planning and government regulation” (para. 1). The shift to a more

market-oriented economy included privatization of government owned and controlled

businesses. The government set economic growth targets and engaged in planning with a goal of

reducing unemployment, poverty, and eliminating structures designed for the privileged.

Government decentralized and encouraged private initiative and investment. The shift to a

mixed, market-oriented economy is an inducement for the telemedicine company and relates

strongly to trends in the economy.

The Philippines is a developing economy with major sectors in agriculture, industry, and

the service sector. American business is increasing looks to the Philippines for business process

outsourcing (BPO), due to proficiency in English as a primary language. According to the Asian

Development Bank (n. d.), “The Philippines is often referred to as a country from which export

of services rather than manufactured goods is the principal engine for economic growth” (para.

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1). The Philippines economy came through the 2008-09 financial crisis better than most and

continued to grow. PHILEXPORT (n. d.) state, “The Philippine economy grew 7.2% in 2013,

notching the second-fastest increase in Asia after China. The growth is attributed to the

expansion of investment and manufacturing as well as the strong performance of consumption

and services” (para. 1). The economy provides the environment, high level of the service

industry, and growth, which are advantageous for the telemedicine company.

Imports and Exports

The economy and structure analysis defines the ability to integrate industry into the

country while imports and exports address the health of the economy. The balance of trade

(BOT) is the difference between what a country export to the imports and is usually the largest

part of the balance of payment (BOP). Exports have grown year over year for the last six years

with a BOT slipping into deficit territory twice. CNN Philippines (2015) state, “BSP expects

2015's BOP position to reverse from 2014 and reach a surplus of $2.0 billion" (para. 3). BSP is

Bangko Sentral ng Pilipinas, the Central Bank of the Philippines. The BOT is the primary

contributor to the BOP and strong exports.

Furthermore, EUI rates for macroeconomic stability as 7.8 on a scale of one to ten (see

Appendix A). The rating takes into consideration imports and exports in dollars and the percent

change year over year. Looking at the export of economic blocks through March for 2014 and

2015 (see Appendix B); note high levels of exports to East Asia, with solid levels in the

European Union (EU), the US, and the Association of Southeast Asian Nations (retrieved from

the Philippine Statistical Authority). Reviewing the top ten exports by destination country

provides an even better balance in the exports picture (see Appendix C). The diversification of

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exports destination provides strength in not being reliant on any one destination. Positive BOT,

diversification of destination country is a stability factor beneficial for the telemedicine company

as is the GDP mix resulting from the BOT.

GDP Mix

The GDP mix is approximately 11% agriculture, 31% industry, and 58% in the service

sector. The service sector is experiencing the greatest level of increases in the GDP, which is of

high importance to the telemedicine company due to increasing needs in this sector.

Furthermore, the Asian Development Bank is recommending expansion of the service sector.

The Asian Development Bank (2013) states. “foster economic development across social groups

and regions including poor and remote rural areas” (para. 1). Service sector needs include the

desire to implement a national universal health program; accessibility issues in remote areas, and

an expanding service sector fit the telemedicine company requirements.

The health care sector in the GDP importance is growing with telemedicine answering

multiple needs by allowing access nationally including remote areas and opening resources

cross-border as needed. The Asian Institute of Management (2011) states, “PPP in the health

sector may alleviate the issue of inequitable access to health care, particularly for the

inadequately serviced rural poor” (p. 1). Advantages to a public, private, partnership, (PPP)

allow greater latitude to assist government while tapping revenue from wealthy and foreign

expats. The Philippines is host to estimates over 300,000 American expats alone. Telemedicine

potential to impact GDP mix in an already healthy service sector is high. Philippine economic

indicators will shed more light on the potential needs for telemedicine.

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Economic Indicators

Key indicators include workforce demographics, foreign investments, economic

development, government policy, economic development, and economic history. The indicators

provide depth in the needs for telemedicine implementation, resources available, and availability

of funding. Opening in a developing economy requires understanding risks such as government

labor laws, fiscal policies, and the ability to capitalize on potential funding. The economic

indicators include foreign direct investment (FDI) as a gauge of the willingness of other foreign

companies to open in the Philippines. Furthermore, understanding the inflation and interests rate

indicators are critical in developing countries in identifying risks associated with the return on

investment impacts of currency valuations.

Inflation and interest rates. In the 1990’s, inflation was running at 9% until

government policy implementation in 2002. According to the International Monetary Fund

(IMF), “Since the adoption of an inflation targeting framework in January 2002, Philippines’

inflation has averaged 4.3 percent” (p. 5). The government continues to seek a reduction in

inflation while being influenced by natural disasters such as typhoons (see Appendix D).

Government targeting framework includes inflation and interest rates. According to BSP, the

current “repo rate is 6%” and the “reverse repo rate is 4%” leaving a two point spread (see

Appendix E). Government tightening to reduce inflation may result in increased interest rates.

The advantages for the telemedicine company is having a gauge to project from and knowing

there will not be wild swings in either area due to government controls.

Economic development. The fiscal controls and economic development are part of the

government’s involvement. The National Economic and Development Authority Priority Plan

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includes “Child Health Development Program, Health Facilities Program, Parenthood and

Family Planning, and Expanded Program on Immunization for Infants” (table). The Philippines

is looking for investments from public and private sectors while encouraging PPP. The Asian

Development Bank (2015) states, “The first $300 million loan is earmarked to support expanded

private participation in infrastructure investment through the promotion of public-private

partnership (PPP) projects” (para. 2). Economic development and PPP’s are a strong inducement

for the telemedicine company in potential funding, and strong government interest. Furthermore,

the Philippines see economic development as a tool to reduce unemployment.

Unemployment. In 2006, the Philippines government chose to change the method of

figuring unemployment in 2006. The unemployment rate stood at 8% in 2006 and is currently

running at 6.6 percent (see Appendix F). Government estimates put the underemployment rate at

17.9%. According to the Philippines Statistical Authority (2015), “Three-fifths (60.8%) of the

total underemployed were reported as visibly underemployed or working less than 40 hours”

(para. 8). The unemployment and underemployment impact the telemedicine companies by

providing a ready pool of employees and understanding high numbers may lead to

socioeconomic issues resulting in higher crime and potential for violence. The quality of the

potential pool includes the educational levels and literacy rates.

Educational levels and literacy. The Philippine literacy and educational data are from

the Philippines Statistical Authority and the 2010 census. The basic literacy rate is 95.6% of 68

million citizens ten years of age and above. The vocational school program supplements the

primary and secondary educational system. Approximately ten percent of the adult population

holds academic degrees. A strong correlation between disasters such as the financial meltdown

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of 2009 and Super Typhoon Haiyan (Yolanda), plus poverty levels estimated at 25% impact

educational decision. For the telemedicine company the educational proficiency is better served

with a higher technical proficiency but understanding this is one of many government priorities.

Labor Force and Legal Structure. Literacy and educational levels provide a

proficiency level while the labor force and legal structure address sustainability of employment

pool and labor laws regulating business. Demographic data taken from the Philippines Statistical

Authority shows a median age of 23.4 years and an overall young workforce (see Appendix G).

Over half of the workforce is wage and salaried employees, over 54% of the workforce is in the

service sector, and 5.1% are professionals (see Appendix H). Each of these indicates a level of

expertise, a young labor force, with the need to develop on the professional side by the

telemedicine company. Furthermore, labor laws and the legal structure are robust in the

Philippines without being onerous. The structure includes common law, civil law, and criminal

law, similar in nature while recommending legal counsel for new entrants such as the

telemedicine company.

Foreign direct investment (FDI). Labor demographics and legal structure address

sustainability while FDI provides the direction other foreign organizations are currently taking in

the Philippines. According to Santander TradePortal (n.d.), “Between January and November

2014, FDI flows reached USD 5.7 billion, which represents a more than 60% increase compared

to 2013” (para. 1). The Philippines is experiencing a share increase of FDI inflows since 2011 as

seen in the World Bank graph in Appendix I. FDI is an indicator of foreign interest and is

showing substantial increases, particularly in BPO, which suggests the telemedicine company

needs to make a decision in the nearer term before other competitors locate in the Philippines.

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FDI inflows are also a stability factor and a positive for companies opening offices abroad. FDI

is part of the fiscal policy in the Philippines.

Fiscal, monetary policy, and external shocks. The Bangko Sentral ng Pilipinas is the

central bank of the Philippines and sets rates and monetary policy using the direction of

government while the fiscal policy is in the government’s domain. The government has been

reducing public debt while ensuring sustainability. Shortly after Super Typhoon Yolanda the

Philippines added to public debt but toady is under control. The country bond rating provides a

key view of the health of fiscal and monetary policy. Fitch Rating outlook revised to positive in

September 2015 while indicating their commercial investment grade. Fitch Rating (2015) state,

“Philippines's senior unsecured Foreign- and Local-Currency bonds are also affirmed at 'BBB-'

and 'BBB' respectively” (para. 1). The rating speaks for the fiscal restraint and monetary

strength of the Philippines, which lowers interest when borrowing and is an inducement for

investment and stability, all key needs for telemedicine operation opening an office.

The ability to recover from external shocks is a measure of the fiscal, monetary, and

economic strength of a country. Super Typhoon Yolanda in 2003 is the worst natural disaster in

the Philippines history. The impacts of the disaster lasted years but today the economy has

bounced back and has become stronger than ever. In 2009, the world financial crisis that

impacted the Philippines economy resulting in a widening deficit. A key issue is the Philippines

ability to balance fiscal and monetary issue while continuing to exercise restraint and move back

into a growth mode without sacrificing debt burden. Philstar Global (2015) states, “The

International Monetary Fund (IMF) believes the Philippines would be able to survive external

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shocks brought about by the slackening global economy on the back of monetary and fiscal

reforms being undertaken by the government” (para. 1).

Fiscal and monetary policy reforms and the resilience to recover from external shocks are

critical considerations for companies to open up an outlet abroad. The ability of a country to

address disasters and external shocks while returning stronger than before demonstrates a

government commitment to the citizens. The staying power and commitment in government is a

key ingredient in the consideration process of the telemedicine company. The use of fiscal and

monetary policy without abusing the system is an attractive consideration by multinationals and

a requirement of smaller entrepreneurial firms. Throughout economic history of challenges a

country faces demonstrates the strength of fiscal policy and commitment of government to

improve economic health.

Economic history. President Ferdinand Marcos imposes martial law in 1972 that lasted

until 1981. Agrarian reforms and multiple economic shocks occur with a culmination in 1986

with a revolution ousting President Marcos. In 1987, a new constitution was adopted containing

multiple reforms and the beginning of a return of government owned and controlled enterprises

back into the private sector. In 1997, the Asian Financial Crisis tested the resiliency of the

Philippines followed by Typhoon Yolanda in 2003 and the World Financial Melt Down of 2009.

The ability to come back stronger after each financial crisis is positive for opening abroad while

other internal factors need consideration. Internal issues of multiple coup attempts in

government, corruption, and issues in the Islamic region bear consideration and cast a note of

caution into the consideration.

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Conclusion

The paper analyzes the political structure and politics, economic structure and the

economy, imports and exports, and economic indicators in the Philippines for a telemedicine

company. Moving abroad requires a comprehensive understanding of the risks associated with

the country under consideration. The economic factors are critical determining factors in such an

expansion. Consideration includes the potential risks and rewards the opportunity presents as

well as the culture and past historical events. Furthermore, research into the candidates for the

May 2016 election needs further study.

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References

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Sector Reform in the Philippines and Possible Opportunities For Public-Private

Partnerships (2011). Retrieved from www.aim.edu/files/download/131

Bangko Sentral ng Pilipinas: Key Rates on December 5, 2015 at 2:16 PM MST (2015).

Retrieved from http://www.bsp.gov.ph

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(2015). Retrieved from

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add-color-to-philippine-elections

CNN: Philippines: Business: BSP projects surplus in 2015 balance of payments (2015).

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http://cnnphilippines.com/business/2015/05/25/bsp-bop-surplus-2015-projection.html

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Economist Intelligence Unit: Database: EIU Market Indicators and Forecasts (2015). Retrieved

from http://secure.alacra.com/cgi-bin/alacraswitchISAPI.dll

Fitch Ratings: Fitch Revises the Philippines' Outlook to Positive; Affirms at 'BBB-' (2015).

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journals.com/jibs/journal/v35/n2/full/8400071a.html?file=/jibs/journal/v35/n2/full/84000

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Philippines (n. d.). Retrieved from

http://globaledge.msu.edu/countries/philippines

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from http://www.neda.gov.ph/2015/02/09/2015-national-priority-plan/

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(2015). Retrieved from

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Philippine Statistical Authority: Content: Literacy of Men and Women in the Philippines (2011).

Retrieved from

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https://psa.gov.ph/content/literacy-men-and-women-philippines-results-2008-functional-

literacy-education-and-mass-media

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census

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Appendix A

Five-Year Market Stability Indicator from Economist Intelligence Unit (n. d.)

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Appendix B

Exports by Economic Block from the Philippine Statistical Authority (2015)

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Appendix C

Top 10 Exports by Country – March 2015 - from the Philippine Statistical Authority (2015)

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Appendix D

Total Inflation and Inflation Target Bounds: 2001-M1 – 2014-M4 from International Monetary

Fund (2014)

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Appendix E

Key Rates from Bangko Sentral ng Pilipinas - Philippine Central Bank (2015)

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Appendix F

Philippines Recorded Unemployment from Economist Intelligence Unit (n. d.)

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Appendix G

Demographics by Age and Sex from Philippines Statistical Authority (2012)

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Appendix H

Percent Distribution of Employed by Occupation from Philippines Statistical Authority (2015)

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Appendix I

Foreign direct investment net inflows from the World Bank (n. d.)