Philippines Risk Assessment for Australian Pharmaceutical Expansion

Introduction

Globalization is an obvious trend that is catching on all over the world, and Australia has not been left behind. This has led some Australian firms to become multinational companies by opening branches and offices in foreign countries, with the goal of increasing global sales volumes, generating more revenue, and achieving a higher return on investment (ROI) for investors (Suryadinata, 2006).

The Australian firm under analysis is Miller Inc., a pharmaceutical corporation providing products to over 54 countries around the world, including New Zealand, Egypt, India, Malaysia, China, the UK, the USA, Canada, Brazil, Chile, and South Africa. The company is looking to expand its business venture to the Philippines. As a business analyst at Miller Inc., this risk management plan analyzes the foreign market situation presented by the Philippines in order to gauge the potential of this business venture (Nolan, 1996). The risk analysis examines the political and cultural systems in the Philippines, ethical practices, the legal system, stability, economic prospects, foreign direct investments, and other aspects of doing business in the Philippines (Nickles, 2002; Publications and Usa, 2007a; Publications and Usa, 2007c). This risk assessment will help Miller Inc. understand the prospects of the venture and to rank and prioritize risks in order to devise the right strategic plan.

The Philippines is a country in Southeast Asia bordered by Taiwan to the north across the Luzon Strait, Vietnam to the west across the South China Sea, the island of Borneo to the southwest across the Sulu Sea, the Celebes Sea to the south, and the Philippine Sea to the east. The country is the 12th most populous in the world, with a population of slightly less than 94 million people and a gross national income of approximately US$2,000. The country has a healthy workforce of about 38.9 million people, a functional literacy rate of 86.4%, and a basic literacy rate of 93.4% for those aged between 10 and 64 years (Llc, 2010; McManus and Chua, 1990).

Profile of the Philippines

The country maintains strong international relations that are largely based on trade. Over 11 million Filipinos live outside the country. The Philippines is a founding member of the United Nations (UN) and participates actively in its Human Rights Council and peacekeeping missions. It is also a founding member of ASEAN (Association of Southeast Asian Nations), an organization that strengthens relations between member states and promotes cultural and economic growth in the Southeast Asian region (Davidson and Studies, 1997; McManus and Chua, 1990).

According to the Doing Business 2012 survey data provided by the International Finance Corporation (IFC) and the World Bank, the Philippines is a lower-middle-income country with a doing business rank of 136 — a slight drop from its 2011 rank of 132. This ranking reflects how easy it is to conduct business in the Philippines.

The Philippines is a democratic country and a constitutional republic with a presidential system. The country is led by a president chosen by a simple majority in free and fair elections, who serves a six-year term and is responsible for appointing and presiding over the cabinet. The president is both the head of state and the head of government, as well as commander-in-chief of the armed forces. The country operates under universal suffrage, though voting is not compulsory and is limited to citizens above the age of 18.

The Philippines is divided into three island groups — Mindanao, Luzon, and Visayas — which are further subdivided into 17 regions, 80 provinces, 138 cities, 1,496 municipalities, and 42,025 barangays.

Political and Legal Systems

The Philippines is a relatively politically stable country. Although the government still faces threats from certain terrorist groups, including organizations on the US Government's Foreign Terrorist Organization list, these threats are somewhat contained, as no major attacks have occurred in recent years. The government has mounted a sustained effort to apprehend these groups: over 200 members have been killed and many others captured. An international monitoring team also oversees the ceasefire agreement between the Philippine government and the separatist Moro Islamic Liberation Front (MILF), reached during the administration of President Benigno S. Aquino III in 2011. Overall, the political system of the Philippines presents only a medium risk, as the situation is under control and the country is actively working to maintain political stability.

The legal system of the Philippines is a combination of Anglo-American common law and continental civil law. The current constitution, which was passed in 1987, bears many similarities to the US Constitution. However, certain portions of Philippine law are unique to the Philippines and do not parallel American or Spanish legal traditions.

The country has an independent judiciary, with judicial power vested in the Supreme Court. The court is headed by a Chief Justice, assisted by 14 associate justices who are presidential appointees recommended by the Judicial and Bar Council. As the highest court in the land, the Supreme Court also has the power to enforce and give effect to law. Lower courts also hear cases (Gonzalez and Calingo, 1998). The Supreme Court is empowered to make rules in areas relating to the enforcement and protection of constitutional rights, the practice of law, court proceedings, and legal assistance for the underprivileged (Pinel and Madison, 2007).

The primary source of law in the Philippines is Congress, which holds the power to enact legislation. The Philippines is therefore a civil law jurisdiction rather than a common law jurisdiction based primarily on court decisions and precedents, although some civil law jurisdictions do incorporate elements derived from court rulings.

Although the country experiences relatively high levels of disorder and criminality, these can largely be attributed to economic instability and other societal challenges. For an international firm looking to do business in the Philippines, this represents a medium risk (McManus and Chua, 1990).

The culture of the Philippines is essentially a combination of both Eastern and Western influences. The country shares certain cultural features with other Asian nations such as Malaysia and also reflects Spanish and American cultural traditions. There is a strong Hispanic cultural influence, evidenced by the prevalence of Spanish surnames and given names among Filipinos. It is important to note, however, that a Spanish surname does not necessarily indicate Spanish ancestry. The widespread adoption of Spanish names resulted from a colonial-era decree mandating the systematic distribution of family names and the implementation of a Spanish naming system in the population (Suryadinata, 2006). Many streets, provinces, towns, and buildings in the Philippines also bear Spanish names.

Conclusion and Recommendations

The Philippines also experiences relatively high levels of criminal behavior, which could represent a risk factor for Miller Inc. That said, the declining unemployment rate is expected to have a positive effect on crime levels over time.

As a multinational company with existing operations in the US and Spain — the two primary cultural and historical influences on the Philippines — Miller Inc. is well positioned to understand and navigate the local cultural environment (Publications and Usa, 2007b). This familiarity represents a meaningful competitive advantage.

In conclusion, the risks presented by the Philippine business environment are manageable. The country offers genuine commercial opportunities, and Miller Inc.'s existing profile makes it well suited to establish successful operations there. The overall risk assessment supports proceeding with the planned expansion into the Philippine market.