Why Foreign Companies are Leaving the Philippines

Summary

The video script discusses the exit of major foreign investors from the Philippines, including Intel, Citibank, and Ford, citing reasons such as global economic shifts, high operational costs, and company performance issues. Despite these departures, the script highlights the resilience of the Philippine economy with examples of local companies stepping in and the continued growth of the electronics industry, suggesting that the country remains an area of interest for foreign investment.

Takeaways

• 🌐 Foreign investors from various sectors have been leaving the Philippines, including major players like Intel and Citibank.
• 💡 Intel's exit from the Philippines was part of a global restructuring plan and was influenced by a downturn in the semiconductor industry and high energy costs.
• 🏭 Ford ceased its production in the Philippines due to a lack of a strong business case for local manufacturing, opting to import from other global plants.
• 📉 Hanjin Philippines filed for bankruptcy, burdened by over $1.4 billion in debt and a damaged brand name from the collapse of Hanjin Shipping.
• 🏦 Citibank sold its consumer banking business in the Philippines to Unionbank, signaling an end to its retail banking operations in the country.
• 📈 Despite the departure of some foreign companies, the Philippine electronic industry continued to grow, with Texas Instruments taking over as a leading investor.
• 💼 The closure of Intel's Philippine operations was not solely due to local issues but was part of a broader economic slowdown and company-specific challenges.
• 🛠️ Infrastructure issues, such as high energy costs, were cited as a reason for some companies leaving, but other factors like global uncertainty and company performance also played a role.
• 🌟 Texas Instruments' expansion in the Philippines indicates confidence in the local market and the ability of the industry to adapt and grow despite setbacks.
• 💼 Citibank's exit from the Philippines was part of a larger strategy to exit consumer banking in over 13 countries, reflecting its own performance issues rather than solely local market conditions.
• 🏗️ The acquisition of Citibank's operations by Unionbank and the revival of the Hanjin shipyard show that there are local companies ready to capitalize on opportunities left by foreign firms.

Q & A

Why did foreign investors like Intel and Ford leave the Philippines?

Intel left due to a broader slowdown in the global economy and the semiconductor industry, as well as high operating costs in the Philippines. Ford closed its plant as there was not a strong enough business case for continuing local manufacturing and decided to supply the Philippine market by importing from other global plants.

What was the impact of Intel's exit on the Philippines' electronic industry?

Despite Intel's exit, the Philippine electronic industry continued to grow, with Texas Instruments Philippines taking over as a leading semiconductor firm and announcing a one billion dollar expansion, indicating their confidence in the Philippines.

Why did Citibank sell its consumer bank in the Philippines?

Citibank sold its consumer bank as part of a global restructuring plan, exiting consumer franchises in over 13 countries. The decision was also influenced by Citibank's own performance issues rather than solely domestic market factors in the Philippines.

What were the reasons behind Hanjin Philippines' bankruptcy?

Hanjin Philippines filed for bankruptcy due to taking on too much debt, amounting to over 1.4 billion dollars, and being unable to repay it. The Hanjin name was also damaged by the collapse of Hanjin Shipping a few years prior.

How did the local economy respond to the exit of these foreign companies?

Local companies like Unionbank and Texas Instruments stepped in to take advantage of the opportunities left by the foreign companies. Unionbank acquired Citibank's consumer business, and Texas Instruments continued to grow and invest in the Philippines.

What does the exit of these foreign companies imply about the Philippines as an investment destination?

The exits suggest that while there may be challenges such as global uncertainty, inadequate infrastructure, and high energy costs, the Philippines still offers opportunities for growth and investment, as evidenced by the continued presence and expansion of other companies.

What was the role of Intel in the Philippine Economic Zone before its closure?

Intel was the first US semiconductor firm to establish a facility in the Philippines, contributing approximately 15 percent of the annual export revenues and being the largest contributor to the Philippine Economic Zone total exports.

How did the global financial crisis affect Intel and the semiconductor industry?

The global financial crisis led to a significant decline in sales and profits for Intel and other chip companies like AMD, contributing to Intel's decision to restructure and close facilities, including the one in the Philippines.

What was the business case for Ford's decision to close its Philippine plant?

Ford decided to close its Philippine plant due to a lack of a strong business case for local manufacturing, opting instead to supply the market by importing vehicles from other global plants, primarily in Thailand.

What happened to the Ford plant in the Philippines after its closure?

Two years after Ford closed the plant, it was acquired by Mitsubishi Motors Corporation, suggesting that Ford's performance in the local market was not strong enough to continue local manufacturing.

How did the bankruptcy of Hanjin Philippines impact the shipyard industry in the country?

After Hanjin Philippines declared bankruptcy, the shipyard was taken over by private equity firm Cerberus Capital Management, which revived the shipyard, and HD Hyundai Heavy Industries became one of the new tenants.

What are some of the reasons foreign investors might leave the Philippines according to the script?

Reasons include global uncertainty, inadequate local infrastructure, high energy costs, and the performance of the companies themselves, which might not be as strong as they once were.

Outlines

00:00

🏭 Foreign Investment Exits in the Philippines

This paragraph discusses the departure of foreign investors from the Philippines, including major companies like Intel, Ford, and Citibank. It highlights Intel's closure of its Philippine operations as part of a global restructuring plan due to a slowdown in the semiconductor industry and financial pressures. The paragraph also mentions the high energy costs and infrastructure issues as potential factors influencing these decisions, but emphasizes that the continued growth of the Philippine electronics industry, exemplified by Texas Instruments' expansion, indicates a resilient economy despite these exits.

05:00

📉 Declining Performance of Global Giants

The second paragraph delves into the reasons behind the exit of Citibank from the Philippines, which coincided with its departure from other global markets. Citibank's decision to sell its local consumer and retail business is framed within the context of the bank's overall decline in performance and net income. The paragraph also discusses the acquisition of Citibank's Philippine operations by Unionbank, illustrating the readiness of local companies to capitalize on opportunities left by foreign firms. Additionally, it touches on Ford's closure of its Philippine plant due to a lack of a strong business case and the subsequent acquisition by Mitsubishi Motors, suggesting that performance issues rather than local conditions were the driving factors.

10:05

🛳 Resilience and Revival in the Face of Bankruptcy

The final paragraph addresses the bankruptcy of Hanjin Philippines, which was once considered the largest foreign investor in the country. Despite the company's collapse due to excessive debt and the tarnishing of the Hanjin name, the shipyard was later revived under new management, with HD Hyundai Heavy Industries becoming a key tenant. This narrative underscores the theme of resilience and the potential for new opportunities to arise from the ashes of failed foreign investments.

Keywords

💡Foreign Investors

Foreign investors are entities or individuals from outside a country that invest capital in that country's businesses or assets. In the video's context, foreign investors are leaving the Philippines, which is a central theme. Examples include Intel, Ford, and Citibank, which have either exited or significantly reduced their operations in the country.

💡Intel

Intel is an American multinational semiconductor company that was once a significant contributor to the Philippine economy. The script discusses Intel's exit from the Philippines, which is used as an example of foreign investment withdrawal. Intel's closure of its Philippine facility is attributed to various factors, including global economic slowdown and restructuring.

💡Ford

Ford is an American multinational automaker that had a production plant in the Philippines. The term is relevant as the script mentions Ford's decision to cease its production in the Philippines, which is part of the narrative on foreign companies leaving the country. The closure was due to a lack of a strong business case for local manufacturing.

💡Hanjin Philippines

Hanjin Philippines refers to the Philippine operations of Hanjin, a South Korean company known for shipbuilding and heavy industries. The script highlights the bankruptcy of Hanjin Philippines as an example of foreign investment failure. The company's financial troubles were due to excessive debt and the collapse of Hanjin Shipping, affecting the reputation of the Hanjin brand.

💡Citibank

Citibank is a global banking institution that had a significant presence in the Philippines. The script discusses Citibank's decision to sell its consumer banking business in the Philippines to a local bank, Unionbank. This move signifies the end of Citibank's direct consumer financial services in the country and is part of a broader trend of foreign banks exiting markets.

💡Global Uncertainty

Global uncertainty refers to the unpredictable and unstable conditions in the world economy or geopolitical landscape that can affect investment decisions. The video mentions global uncertainty as one of the reasons foreign investors might leave the Philippines, suggesting that it can influence companies' strategies and operations worldwide.

💡Infrastructure

Infrastructure refers to the basic physical and organizational structures needed for the operation of a society or enterprise. The script implies that inadequate local infrastructure in the Philippines, such as high energy costs, might be a factor contributing to the departure of foreign investors like Intel.

💡Texas Instruments

Texas Instruments is an American technology company that designs and manufactures semiconductors. The script contrasts Intel's exit with Texas Instruments' growth and expansion in the Philippines, illustrating that not all foreign tech companies are leaving and that some are even increasing their investment in the country.

💡Market Capitalization

Market capitalization is the total market value of a company's outstanding shares of stock. The script uses Intel's market capitalization as an indicator of the company's performance over time, noting that it has not significantly grown since the 21st century, suggesting underlying issues beyond the Philippine market conditions.

💡Unionbank

Unionbank is a local bank in the Philippines that acquired Citibank's consumer banking business in the country. The script highlights this acquisition as an example of local companies taking advantage of opportunities left by foreign investors, demonstrating the resilience and potential of the Philippine market.

💡Restructuring

Restructuring refers to the process of reorganizing a company's structure or operations to improve efficiency or performance. The script mentions restructuring in the context of Intel and Citibank's decisions to exit the Philippines, indicating that these moves were part of broader strategic shifts by the companies.

Highlights

Foreign investors from various sectors have been leaving the Philippines, including Intel, Ford, and Citibank.

Intel's exit from the Philippines was due to a global economic slowdown and restructuring, not solely local issues.

High energy costs and infrastructure issues were cited as potential reasons for Intel's departure.

Despite Intel's exit, the Philippine electronics industry continued to grow with companies like Texas Instruments.

Citibank's exit from the Philippines was part of a global strategy to exit consumer banking in 13 countries.

Citibank's decline in performance globally influenced its decision to leave the Philippines.

Unionbank's acquisition of Citibank's consumer business in the Philippines shows local companies' readiness to take over.

Ford's closure of its Philippine plant was due to a lack of a strong business case for local manufacturing.

Thailand, with higher operating costs, was chosen over the Philippines for Ford's manufacturing, indicating other factors at play.

Mitsubishi Motors' acquisition of Ford's closed plant suggests that other companies can capitalize on the opportunities left by departing firms.

Hanjin Philippines' bankruptcy was due to excessive debt and the collapse of Hanjin Shipping, not just local economic conditions.

The revival of the shipyard by Cerberus Capital Management and HD Hyundai Heavy Industries shows the potential for recovery after bankruptcy.

The narrative challenges the notion that the Philippines is one of the worst places to invest, highlighting the complexities of foreign investment decisions.

The transcript emphasizes the importance of understanding each company's specific reasons for leaving or failing in the Philippines.

Market capitalization stagnation of Intel since the 21st century suggests internal company issues rather than solely external factors.

Transcripts

Foreign investors ranging from manufacturing  companies to banking institutions have been  

leaving the Philippines. A decade  ago, we saw the largest foreign exit;  

Intel. An American electronic giant, who  helped create the electronic industry of  

the Philippines left. A few years after Intel  left, Ford, the American automotive company,  

had ceased its production in the Philippines.  They closed their plant that was producing  

35,000 vehicles a year. By 2019, we also  saw the bankruptcy of Hanjin Philippines,  

which was hailed as the largest foreign  investor in the Philippines. Then, Citibank,  

the largest foreign bank in the Philippines had  sold its consumer bank to local company Unionbank,  

signaling the end of America’s financial  grasp to the Philippine consumers.

Such instances are only examples of the many more  out there. These foreign companies either leaving  

the Philippines, or seeing the bankruptcy of  their subsidiary may suggest that the local  

economy is either bad, or not worth investing  in. Does this then imply that the Philippines  

is one of the worst places to invest in for  foreigners? Well, there are reasons why some  

foreign investors leave. They either  leave because of global uncertainty,  

inadequate local infrastructures, possibly  expensive electricity, are just some of  

the reasons out there. But to truly understand  this, it is important for us to understand each  

company's reason. Why did Intel leave, why did  Citibank sold its local business, why did Hanjin  

Philippines go bankrupt. Only then can we actually  decode why these foreign investors have failed.

Let’s first start with intel. Intel was a very  important company in the Philippines. They were  

the first US semiconductor firm to establish  a facility, and their total exports up to  

2008 amounted to $5 billion US dollars. They  were the largest contributor to the Philippine  

Economic Zone total exports accounting for  approximately 15 percent annual export revenues.

The closure of Intel Philippines was not  unexpected. There were already reports of  

the company’s intention to cease local operations  in 2005. This speculation intensified when Intel  

opened up a new facility in Vietnam in 2006.  They further invested significantly in its  

Malaysian and Chinese facilities. Further,  their plant in the Philippines actually  

failed to secure additional funding from  intel’s $1 billion investment plan for Asia.

On top of that, the announcement to close their  assembly test facility came after Intel saw a  

huge drop in its fourth-quarter profit. Their  profit fell 90 percent in the fourth quarter,  

and on top of that saw sales slow down by  23 percent. What Intel said was that the  

closure was part of a broader restructuring  plan, which included shutting down similar  

facilities in Malaysia, and halting production  at plants in Oregon and California. Further,  

the cause for its decline in both sales and  profit was due to the broader semiconductor  

industry. The global financial crisis had  struck the industry, which led to other chip  

companies such as Advanced Micro Devices  (AMD) to experience significant declines.

The main reason for Intel’s exit was because  of a broader slow down in the global economy,  

and the semiconductor industry. However,  many observers stated that it was because  

of the Philippines infrastructure issues. The  energy cost was high, some said that in 2009,  

it was the second-highest just after Japan.  Others said that Intel just wanted to take  

advantage of lower wages in Vietnam,  hence why they opened up a new facility  

there in 2006, and subsequently closed the  Philippines and a facility in Malaysia.

Although Intel’s exit was unfortunate, when we  look back on it now, the Philippine electronic  

industry continued to grow. Just take a look  at Texas Instruments Philippines, a company  

that was one of the pioneers in the semiconductor  space in the Philippines. They continued to grow,  

and are now one of the largest and most important  foreign investors in the Philippines. They took  

over the semiconductor crown from Intel. Recently,  Texas Instruments Philippines had even announced  

a one billion dollar expansion recently,  indicating their confidence in the Philippines.  

What is even more is that, while Intel blamed  the semiconductor slowdown, one should never  

forget that Intel has not really grown since the  start of the 21st century. Market capitalization,  

an indicator that showcases how valuable a company  is, has not really grown much since 2008. Way back  

in 2003, Intel had a market valuation of over 219  billion dollars, by 2008 this fell to 128 billion,  

and was further hurt by the global financial  crisis to 70 billion. Yet, today, Intel is still  

stuck with a valuation of 130 billion. For over  20 years, Intel based on market capitalization  

has not really grown. While one can partly blame  the Philippines because of high operating costs,  

one should also not forget that Intel  itself isn’t a well-performing company.

The exit of Intel kind of  coincides with why Citibank,  

the largest foreign bank in the Philippines,  left the Philippines. In early months of 2021,  

Citibank said it was selling its local  consumer and retail business in the  

Philippines. This means that Citi will  cease its local credit card business,  

retail deposit-taking, asset management, and  lending services to individuals and households.

Citibank was not just any other foreign bank  in the Philippines. They were serving over 950  

multinational corporations and more than more  than 100 leading local corporations. They were  

catering to over 90 percent of the country’s  20 most valuable companies listed on the stock  

market. In 2020, Citi raised over $20 billion from  global capital markets for its Philippine clients.

Cezar Consing, the President of the Bank of  the Philippine Islands and former president  

of the Bankers Association of the Philippines said  that Citi had built a strong retail and consumer  

banking business in the Philippines. It was  well-managed, and had a substantial consumer base.

Put simply, Citi was needed in the  Philippines. So why did they leave? Well,  

just like what happened to Intel. Citibank is  no longer a high-performing company. When they  

announced their exit in the Philippines, they were  also exiting their consumer franchises in over 13  

countries. They were leaving South Korea, India,  China, Australia, Bahrain, Vietnam, and other  

jurisdictions. They were no longer capable of  being a global brand that everyone once knew and  

loved. Since the global financial crisis, Citibank  never actually grew. In 2006, the company had a  

net income of 29.6 billion dollars. In 2023, that  figure amounts to a small sum of 12.91 billion.

Once again, one can try to blame it on  the domestic market of the Philippines,  

but you should not. Citibank, itself, is just  no longer the company it once was. Moreover,  

when Citibank exited its business in  the country, a local company actually  

rose and bought it. Unionbank, one of the  fastest growing banks, paid a big sum for  

this acquisition. It cost them over 55 billion  Philippine pesos or about one billion US dollars  

to acquire the entire business that Citi was  selling. This was not a small amount of money,  

especially since Unionbank is not amongst  the five largest banks in the country. Yet,  

they mustered up and took the opportunity.  This showcases that there are local companies  

out there that are willing to take advantage of  what foreign companies are going to leave behind,  

no matter how small they are. The same  can be said for Texas Instruments and  

Intel. T1 took the reins as the leading American  semiconductor in the Philippines when Intel left.

Then, one can also look at Ford Motors Company’s  closure of their plant in the Philippines. Back  

in 2012, Ford said that they will close their  assembly plant in the Philippines as part of a  

restructuring in the region. Ford’s decision  to close its plant in Santa Rosa was because  

there was not a strong enough business  case for continuing local manufacturing,  

said the President of Ford Group Philippines.  Instead of manufacturing locally, the market  

in the Philippines will be supplied by importing  from other global plants, primarily in Thailand.

The move to Thailand may be significant enough  to warrant a case for the Philippines. In this  

scenario, can we blame the Philippines? Well,  let’s look at it this way. Thailand should have  

a higher operating cost. The country has  higher wages than the Philippines. Yet,  

they still closed the Santa Rosa plant.  Why? Well, one can indeed speculate. But  

if you knew that after two years the plant  would be acquired by a Japanese Company,  

then you can simply say it's because they  weren’t performing well in the local market.

Two years after Ford closed their Santa Rosa  plant, Mitsubishi Motors Corporation acquired  

that very same plant. What does this suggest?  Simple! They just aren’t performing well enough to  

continue local manufacturing. Further, there are  other better companies that are going to eat up  

what they left. It is not about the Philippines’  high energy cost, nor is it due to wages,  

or poor infrastructures. That can be, but it  is difficult to say that these are the reasons  

alone because other companies are also coming  in, and taking over what they leave behind.

The same is seen through Hanjin Philippines.  The company, although never left voluntarily,  

had instead declared bankruptcy. They declared  bankruptcy because Hanjin had taken on too much  

debt. They had over 1.4 billion dollars of debt,  and could no longer pay them back. On top of that,  

the name “Hanjin” had been damaged in 2016,  when Hanjin Shipping had collapsed a few years  

prior to Hanjin Philippines bankruptcy. A  few years later, private equity firm Cerberus  

Capital Management took over. They revived  the shipyard. HD Hyundai Heavy Industries,  

the world’s largest shipbuilding firm,  is now one of the new tenants for the  

shipyard. This again showcases that even  if a foreign firm collapses, a newer one,  

sometimes better will emerge. But anyway, do  let us know what you think. Thanks for watching!