I did not know what franchising was all about until recently. Even as, being an Alabang resident, I took Figaro coffee, had weekend breakfast at Pancake House, dined on crispy pata at Dencios, and shopped with my grandchildren at Bench, which I mistook for a foreign brand.

KNOWING ABOUT FRANCHISING

Now I know that the Philippines currently has several franchise concepts, both foreign and homegrown. I also read that the Philippine franchise industry has gone a long way from 50 franchisees at about the time your Philippine Franchise Association was formed, in February 1995. The rapid growth and strength of franchising as a business support organization attest to the aggressiveness and leadership of your officers and stakeholders in the industry.

On the national level, franchising serves as an engine for growth and sustainability for distribution businesses in the country. I was told about Julie’s Bakeshop which I have visited once or twice when I was in Cebu being a long-time icon there in the bakery business. Having opened its doors to franchising early enough it is now the largest bakery chain with over 400 outlets nationwide. And more recently, Reyes Haircutters, which started just a few years ago with four Manila-based saloons, now has over 200 outlets nationwide. With almost 100,000 franchisees operating nationwide, 500,000 employment opportunities have been generated, and sales from franchising accounted for about 15% or PhP28B of total retail sales in 2003 amounting to PhP195B. There is no doubt that franchising is the most significant business format introduced over the decades as an effective tool in national development.

Now, I am most glad to know, franchising is becoming the springboard for the successful export of Filipino brands - in food, retail and service- to global markets. It was through franchising that a number of Filipino brands were able to conquer international markets: Jollibee, which is now in Hong Kong, Vietnam, China, Brunei, Guam, Saipan, Indonesia and the USA; Chowking in Dubai, Abu Dhabi and Indonesia; Goldilocks in the USA and Canada; and both Max’s and Red Ribbon in the USA. Retail companies have also ventured internationally, among them: Bench in China, Dubai, Abu Dhabi, USA, Saipan and Guam; Islands Souvenirs in Singapore, Japan and the USA; Penshoppe in China; and the Sari-Sari Group of Companies in the USA. Crystal Clear Water and Netopia, on the other hand, lead homegrown service/retail franchises by setting up franchises in Indonesia and Malaysia, and in Thailand respectively.

In turn, you should know that distribution service, which includes franchising, is among the top ten service sectors offered for liberalization in ongoing international trade negotiations. Which means that the world market is wide open for Philippine franchisers and franchisees, a window to globalization. And I believe Franchising will thrive luxuriantly in the growing international trade in services. That is because franchising is about improved business systems and viability; about providing services that improve productivity, quality and delivery of products, satisfaction of customers; and about innovative touches in business, whether they be physical or intangible products … all of these characteristics being ingredients of successful businesses anywhere in the world.

THE IMPORTANCE OF SERVICES TRADE

Without diminishing the importance of physical products in global economic growth and prosperity, nor the contribution of technology in bringing about higher levels of productivity, employment and income -- I venture to say that services trade will develop into the most important economic contributor to the future growth of global economies. It will be the key to economic progress and socio-cultural well being in the Philippines.

What is trade in services? Services trade covers such sectors as banking, finance, telecommunications, transport, tourism and travel, shipping, education, retail and distribution. There are also a lot of other business services like accountancy, engineering, medical, and a host of I-C-T driven services we are now familiar with in the diverse framework of “outsourcing”.

Trade in services is oftentimes incomprehensible to ordinary people. For example, few would consider barbers, therapists, consultants, hotel employees as exporters when they receive money from foreign clients.   The act of services delivery is integral in the day-to-day living of these service providers and the income do not figure in the balances of trade and payments statistics. It is almost hard for government policy makers and economists or statisticians to monitor and record what in ordinary merchandise trade similarly amounts to dollar earnings which means income, and employment or investments attributable to infrastructure building and education, training and skills development attendant to the service industry.
 
Because of its intangibility, available statistics on services trade are still imprecise, incomplete but as a group, developed countries now derive more than two-thirds of their gross output from services trade. Even developing countries like the Philippines have services accounting for more than half of gross product, and growing at a rate double that of trade in goods. In the Philippine case, it is also, now, our biggest source for direct foreign investments and employment.

Be that as it may, global non-governmental trade in services is estimated to have grown from US$364 billion in1980 to US$1.6 trillion in 2002, and to around US$2.5 trillion in 2004, an amount equivalent to one-third of global trade in goods.

In terms of share in foreign direct investments, services increased from less than 50% of F-D-I stock in 1990 to 60 percent in 2002.

Mind you, these numbers are underestimates for only eleven major sectors of services trade which are in the forefront of liberalization and some of which I shall mention later.

CURRENT NEGOTIATIONS IN SERVICES

As a result for the Uruguay rounds culminating in the Marrakech Agreement creating the W-T-O, trade in services is now part of the international trade framework. Negotiations in services trade are being conducted in parallel with talks on trade in goods, agricultural reform, trade facilitation, and intellectual property in the Doha Development negotiations starting in 200l. The negotiations cover liberalizing markets and rules-making.

Negotiations in the trade in services have initially centered on the infrastructure sectors like banking, finance, telecom, and transport liberalization. In retrospect, the liberalization we committed some of these sectors have improved our international competitiveness, the productivity and efficiency of our human resource and drawn a lot of inward investments for our active business stakeholders, provided various forms of support to industries linked to them such as the electronic and semiconductor industries, including the present harvests we have on “outsourcing”.

The negotiations are tedious because the bases for liberalization do not partake of concrete quantitative realities as tariffs, minimum access volumes and safeguard duties, and other trade charges. Rather, negotiations are on various constitutional, legal, and regulatory issues embedded in various layers of governance.

Negotiations focus on government regulatory policies and procedures which, in effect, decide whether people can do electronic and digital cross border services like call centers, business process and computer software development which falls under the first mode of supply in services trade called, cross border trade.  Also covered are procedures for foreigners to come to the Philippines as tourists (unfortunately air traffic rights are not covered by the WTO) to obtain health and wellness treatment, educational and retirement facilities in the Philippines which is the second mode of delivery called transfer of consumers. There are also discussions about foreign services trade investments in the Philippines which is the third mode of supply and cover our investment incentives program, as well as the free movement of people across borders as service providers which is the fourth mode.

In effect there are four modes of services supplies delivery, two of which involve service businesses coming to the Philippines and for which service providers do not need to go abroad, one for the latter to move abroad freely if agreed in the negotiations and the fourth synonymous with our investments incentives programs and policies.

Negotiations cover both sectors and modes of supply of services trade.

If the ordinary businessmen’s awareness of the services trade leave much to be desired, how much more for the rest of civil society and the NGOs whose aversion to the words liberalization are found to be acute.  To help develop a wider understanding of the Services Agreement in the WTO create wider awareness of the cost and benefits for stakeholders, to identify areas of business gains and losses, to identify target markets and develop national consensus on a common negotiating posture and export development strategy, OUIER negotiated for foreign funding from the European Council thru the International Trade Center as executing agency for a PHILIPPINE SERVICES TRADE COALITION PROJECT bringing together the frontline government departments, the DFA, DTI, NEDA, the academe and the private sectors of our economy, namely, that of franchising, accountancy, engineering, medical, animation, education, shipcrewing and the related business process outsourcing opportunities integral into some of the above sectors.  For this purpose Project will undertake market researches to identify the principal markets, the legal, administrative and other regulatory barriers, on the competencies and standards requirements of these market so that, thru our educational reforms, training and standards formulation activities we can match and negotiate effectively with our partners and facilitate soon enough our services exports in the target markets.

The project will also undertake sectoral consultations in the Philippines to discuss with stakeholders from time to time the results of the studies. These consultations will be directed to exporters and service providers, and if resources permit the Project will target the small and medium service enterprises outside of Greater Manila.
 
In November 2004, President Gloria Macapagal Arroyo also established an export services competitiveness Task Force to conduct studies on new areas of competitiveness in services trade beyond the ICT, LOGISTICS, health and wellness sectors. This Presidential Task Force compose a majority of the private sector stakeholders with only two Departments, that of the DTI and DFA and the Presidential Adviser on Competitiveness in its active membership.

These sectoral studies and, what will amount to an export development and promotion plan for our leading sectors, will be unveiled by the Coalition and the Task Force early next year. Meanwhile the active international promotions of ICT driven opportunities in outsourcing and back office processing are being intensified.

We need to do both promotion and negotiations now so we can benefit from the current boom in services trade.  WE need to integrate our development and promotion strategies at various bilateral, regional and multilateral trade negotiations.

THE ROLE OF FRANCHISING

Franchising, for me, is a laboratory for SME development; more than that, a laboratory for growing entrepreneurial skills. By exposure to and practical on-the-job training in systems, productivity, delivery, designs, customer relations, assessment – all activities involving innovations and disciplines, the entrepreneurial culture we so critically need can be augmented.

That is why I encouraged the PFA to include, as a module in this event, the participation of Mr. Joey Concepcion, the Presidential adviser on entrepreneurship. His program and that of his colleagues, captioned “believe and inspire” which he presented to the Cabinet last year really captures the essence of his apostleship.

I would also be interested to hear the presentation of Ms. Linda Shunk on growing franchise during difficult times and that of Mr. Peter Holt on the cultural, trade and legal barriers in key markets. From them I will surely be able to gain useful insights and inputs to my Coalition building project.

A word on your sectoral plans and activities, including the sectoral study in the Coalition, SME outreach and the franchising export desk. We will start the Coalition study within two weeks time and undertake the sectoral consultation and SME outreach by the end of the year. I believe there are also various activities which you have included in your omnibus program which will involve the assistance of the Philippine Exporters Confederation, through its Partnership and Advocacy for Competitiveness and Trade, or PACT, with the De la Salle Angelo King Institute and its sister project with the USAID called EMERGE, or Economic Modernization through Efficient Reforms and Governance Enhancement. I especially recognize the presence of Mr. Peter Holt of the US-based International Franchise Association without his continuing guidance and useful insights this conference would not be meaningful. All of these inputs ensure the successful spread of the culture of franchising and contribute greatly to the economic betterment of the country and its people.

Thank you all.
 

/jay