One of the hallmarks of the Duterte administration is the relaxation of foreign investment regulations. Thanks to this development, foreign companies may now have full ownership in key sectors, including the automotive industry. By removing restrictions on foreign businesses, government hopes to attract more foreign investments, although the move is not without its critics (political and otherwise).
In the past, carmakers wanting to do business in the Philippines had to partner with a local ally. The industry’s leading firm, Toyota Motor Philippines, is 51% owned by GT Capital Holdings; the remaining 49% is shared by Toyota Motor Corporation (34%) and Mitsui & Co. (15%). Today, a foreign automotive company can do it all without a local partner.
Needless to say, with a 45% market share, Toyota seems to present the most ideal structure for rivals to emulate. Why then are car brands now beginning to ditch their Filipino partners? Is this really the best way forward?
Last year, South Korean brand Hyundai surprised the industry by terminating its passenger-vehicle distributor cooperation with its longtime Philippine associate, and opening a fully owned subsidiary. While we may never know the real reason for the move, indicators seem to offer some clues.
Another foreign company, the Spain-based Astara, now distributes Peugeot and GAC. It is not 100% foreign-owned, but close—a Filipino partner holds a 10% stake.
And now, the rumor mill is in overdrive as Chinese car brands are said to be changing ownership hands as you read this. I know of at least two Chinese brands that will reportedly be taken over by their Chinese principals. What this means is that said brands will now be solely managed and operated by these principals.
While absolute control over a business entity looks attractive, the pitfalls that going solo brings with it are many. Especially in a country that is famous for unnecessary bureaucracy at best and for downright corruption at worst. Surely, these Chinese firms are not so bold as to willingly engage our tricky business jungle on their own.
I asked veteran industry executive Vince Socco who has some insight about the matter. Now the chairman of GT Capital Auto and Mobility Holdings, the man doesn’t believe that foreign car companies would rather forgo the advantage of a local partner just for the heck of it.
“Most would like to find a good partner to navigate the local business-scape,” he told me. “Many big companies—especially if they are publicly listed—have very real risks in terms of good governance and regulatory compliance. ESG (environmental, social and governance) is a really big deal. So when problems arise, then maybe going it alone becomes a preferred route.”
Reading between the lines, I think that what Socco is saying is that some foreign businesses have been burned just from dealing with Filipino partners.
“I am a believer in free market enterprise in support of the free flow of investments to help grow the economy,” he added. “In a globalized world, we have to assure our place in the global markets and supply chains. Ownership limitations disrupt the free flow of capital. In any case, a strong and reliable local partner will always attract the attention of foreign investors. Given the chance, I believe that foreign companies appreciate going into partnerships with local businessmen—either in minority or majority ownership roles.”
Bottom line: Foreign carmakers are not here to power-trip by rejecting local partners. If they could find good and trustworthy allies, I don’t see why they would refuse the support of the latter. As Socco asked: “If you find a good partner, why divorce?”
Maybe, just maybe, the industry is facing the dawn of a better era. One where consumers are not shortchanged by greed and mediocrity.
Maybe.
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FILL YOUR TANK: “For our citizenship is in heaven, from which we also eagerly wait for the Savior, the Lord Jesus Christ.” (Philippians 3:20)
